Chinese Currency Manipulation the Source of Copper’s Bigest Problem

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With estimates that as much as 60% of China’s copper stock is used as trade collateral, there’s panic among copper investors who are worried about massive liquidation in the market.

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Over the years, copper’s value has expanded beyond its use as an industrial metal, and the commodity is now firmly a highly financialized product in China, said John Hardy, head of foreign-exchange strategy at Saxo Bank told Marketwatch’s The Tell blog in emailed comments Wednesday.

He said the drop in copper prices “can be directly traced to the recent and obvious move by the Chinese regime to weaken its currency in order to slow the popularity of the US dollar/China yuan carry trade that was driving their currency stronger against the USD even as major [emerging market] currencies were recently weak.”

As the dollar-yuan carry trade is being curbed, it appears large copper positions are being unwound, hitting those who were using copper as collateral and perhaps causing positions to be dumped, Hardy said.

The price of Chinese bright copper scrap closed Friday, November 14 at CNY 42,700 ($6,952) per metric ton, halting its three-day flat run with a 3.6% drift. Chinese copper bar saw little change in its price last Friday at CNY 48,580 ($7,910) per metric ton. The cash price of Chinese copper held steady around CNY 48,780 ($7,942) per metric ton. The price of Chinese copper wire showed little movement last Friday at CNY 47,835 ($7,788) per metric ton.

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The price of US copper producer grade 122 showed little movement last Friday, hovering around $3.70 per pound. The cash price of primary Japanese copper remained essentially flat at JPY 808,000 ($7,421) per metric ton. The price of US copper producer grade 102 held steady around $3.89 per pound. The price of US copper producer grade 110 remained essentially flat at $3.70 per pound.

On the LME, the 3-month price of copper held steady around $6,695 per metric ton. The primary copper cash price held steady last Friday on the LME, remaining around $6,755 per metric ton.

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