Global Shipping, Copper LME Stocks & Copper Price

An NFTRH subscriber kindly sent me this article on surging global shipping costs.

Shipping’s great fuel switch is starting to drive up freight costs

For reference, here’s the NFTRH chart of the Baltic Dry Index utterly failing to have positive leadership effect on commodities, especially. Something has seemed disconnected as front loading pressure due to the trade war would have seemingly been worked through and yet most commodities * burrow southward.

baltic dry index (bdi)

And indeed, two forces are working together to drive rates…

The maritime industry is preparing for one of the most significant changes in its recent history — a mandatory curtailment in sulfur oxide emissions that will be imposed in just over three months’ time. In order to comply, thousands of ships are being taken out of the market to fit equipment called scrubbers that will allow them to keep burning today’s cheaper fuel. The ships that don’t have them are expected to have to pay more.

“The main reason is that a rising number of vessels are going off-hire to retrofit scrubbers ahead of the January 1 deadline.” said Burak Cetinok, head of research at Arrow Shipbroking Group in London. “Basically, you’ve got strong export volumes on the one hand and restricted vessel supply on the other. This has been boosting the rates.”

You may recall my 3 Metallic Amigos stick, where I occasionally post the charts of gold, silver and copper futures as we gauge the state of the cycle (copper cyclical, gold counter cyclical and silver a cross dresser).

As for the current copper situation, it does not seem to mesh with the “strong export volumes” noted above as the formerly depressed warehouse supplies have been relieved, big time over the summer. Taken at face value, copper inventory is again sitting on warehouse shelves.

copper lme warehouse stocks

As for the copper price, it no longer has the implied warehouse stocks support it had in the spring (lotta good it did) and continues to poke at support per the daily chart (click for clear, expanded view).

copper price

The weekly chart continues to advise that this support level is very important because if it’s lost there is no support until 2.25, and the ugly pattern itself measures to around 1.70. I don’t think the latter is a high probability but the former would happen if we get a macro scenario where deflation gets one final fling to scare everybody onto that side of the boat for 2020 (oh what a potential setup that would be).

copper price

Just some thoughts while checking in with the good Doctor this morning.

* One notable exception was reviewed in NFTRH 566.

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