Thursday, September 17, 2009
For some time now, reports have been circulating about the growing amount of copper wire being accumulated by Chinese pig farmers and, to date, these actions have been largely portrayed as a speculative undertaking, one that has helped the price double this year.
With their long held penchant for gambling and amid one of the largest infrastructure programs the planet has ever seen, funded by one of the largest government backed credit expansions on record, this rural stockpiling was thought to be held in "weak hands" (i.e., those likely to sell in a panic). But, according to this Bloomberg report, maybe not...
Pig farmers and other speculators may have amassed more than 50,000 metric tons, Jeremy Goldwyn, who oversees business development in Asia for London-based Sucden, wrote in an e- mailed report after a visit to China. That’s about half the level of inventories tallied by the Shanghai Futures Exchange, which stood last week at a two-year high of 97,396 tons.After reading this a couple more times, it's still not quite clear what has motivated farmers to buy copper, but one thing seems very clear - they've been buying a lot of it.
Scotia Capital Inc. analyst Liu Na highlighted the role of Chinese pig farmers and other private speculators in the metals markets in an Aug. 17 note that cited reports from state-owned China Central Television. These speculators may become “quick sellers” if sentiment turned, Liu said in that note.
To be sure, Sucden’s Goldwyn wrote that the stockpiles of copper and nickel held by farmers and others in China may “not be ‘dumped’ back in the foreseeable future as some have recently suggested, wherever prices go.” Goldwyn didn’t give a reason.
The metals holdings by pig-farmer investors and other private speculators give “the impression that there is strong demand in China,” said Jiang at Shanghai Oriental. “But it is actually those who take a pessimistic view of the economy and are looking to preserve their wealth who are buying.”