China Driving Bullish Reversal For Copper

I have a chart of copper that I MUST share with you. Despite the bearish news on the global economy as a whole, copper is strong and getting stronger …

You can see that after plunging last fall, copper has spent months hammering out a rounded bottom. This kind of pattern is often an indicator of trend reversal. In this case, the trend would be reversing from bearish to bullish.

Then, last week, copper prices climbed to the highest level in nearly six months after five straight weeks of gains - its longest rally in a year. Copper’s move higher has come on higher and higher volume. That’s very bullish!

The next test of copper comes at 2.27 - near-term overhead resistance.

There are two pieces of news that could be driving this move … both coming from China.

China’s Stimulus Package is Working …

On Saturday, Chinese Premier Wen Jiabao said that his country’s stimulus package is working and the economy is “better than expected.”

More infrastructure projects in China will mean greater demand for copper.

While Wen cautioned that complete recovery will take much more time because the global financial crisis continues to spread, he pledged to pull the country out of its slump by, among other efforts, expanding domestic demand and building major infrastructure projects.

You know what more infrastructure projects and consumer demand in China would mean - more demand for copper. In fact, it’s already happening …

China is buying copper hand over fist. Copper stockpiles in warehouses monitored by the London Metal Exchange dropped to their lowest levels since February 2. The reason: Chinese imports of refined copper topped 300,000 tons for the first time in March.

At least 75,000 tons of that copper is going to the government’s State Reserve Bureau stockpiling agency. China plans to stockpile aluminum, copper, zinc and lead for its metals reserves over the next three years, according to a report from the China Nonferrous Metals Network on Friday.

The report cited Jia Mingxing, vice chairman of the China Non-ferrous Metals Association:

The State Reserve Bureau plans to buy 1 million metric tonnes of aluminum, 400,000 tonnes of copper and (a combined) 400,000 tonnes of lead and zinc over the next three years.

What’s more, Chinese imports of iron ore are also soaring, hitting a record in March.

So is China just stockpiling for its infrastructure projects, or is it something else?

Diversifying Away from Treasury Notes and Bonds

China is seeking hard assets, such as stakes in copper miners and their projects.

One theory is that China is attempting to diversify its investments away from U.S. Treasury notes and bonds. It is instead seeking hard assets, such as copper stockpiles and stakes in miners and their projects. Examples include Chinalco’s proposed deal with Rio Tinto (RTP) and the China Minmetals deal to buy most of Australia-based OZ Minerals.

But there’s a second theory that goes beyond that …

An analysis from Britain’s Daily Telegraph speculates that China could be ready to end its dollar dependence and go on a “commodity standard.”

Nobu Su, head of Taiwan’s TMT group, which ships commodities to China, told the Telegraph that Beijing is trying to extricate itself from dollar dependency:

China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years.

My Red-Hot Commodity ETFs subscribers are already playing this move in copper - with open gains on the PowerShares DB Base Metals ETF (DBB). If you’re thinking of buying it for yourself, remember, it’s just as important to know when to get out as when to get in.

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