Rising Copper Is Bad News for Tesla

The macro theme of the weaker dollar is finally filtering through to higher commodity prices, but there are also some micro-worthy events behind the moves in the past week. The biggest mover in the past week is copper, where length was building before the move and has accelerated as the price has hit two-year highs. This has helped the equity prices of copper producers -- from BHP Billiton to Freeport McMoRan -- as their cash flow is going to allow them to pay down debt faster. It may also lead to more consolidation in the base metal sector. But the biggest reason for copper strength is the continued better-than-expected economic growth in China, combined with new potential onshore regulations banning copper-related waste starting in 2018. The SHFE (Shanghai) speculators have also drastically increased net length for the past five sessions, which has propelled copper above $6,400/ton. In addition, the strength in Boeing's orders on the back of Caterpillar's strength bodes well for copper producers. The last piece of the puzzle to copper demand is the increase of electric cars, as there is more copper wiring that goes into each of these vehicles. This is not good for Tesla and other electric auto manufacturers as the copper price will affect the profitability of cars. The rest of the base metals sector has followed, with aluminum being helped by rumors of Russia speaking to Middle Eastern producers about an OPEC-style aluminum output agreement. This would be a repeat of the memorandum of understanding from 1993, where a major investment bank, a few U.S. hedge funds and global producers banded together to hold physical Ali off the market to get the cash price higher. Nickel, zinc and lead are moving higher as well, and nickel shorts are getting squeezed out as the cats bought when the 200-day moving average was crossed. Gold is finally getting a boost from the lower dollar and the complacency that investors have had toward the yellow metal. Gold has hit six-week highs (not saying much, as the dollar hit a 13-month low) as shorts have begun covering rather than rolling the August future into the more-active December contract. The obvious driver overnight is the dovish Fed, as it is doubtful a rate rise will take place before December -- if at all this year. Possibly more important for gold is the uncertainty over whether the Fed is capable of reducing its $4.5 trillion balance sheet without being disruptive to other asset markets. I am a believer that the cryptocurrency craze has taken some of the luster off of owning gold, but I also feel that bitcoin and ethereum will run into strict regulatory hurdles as they aim to go more mainstream. Although I have been friendly to gold since the start of the year, I did feel that platinum would close the gap of its discount to gold. But with the EU's edict of eliminating diesel vehicles by 2040, platinum investment may remain under pressure. Granted, 23 years is a long time off, but the worry for platinum producers is a windfall for palladium producers. Platinum-palladium is at its narrowest level on record -- and palladium, which is in supply deficit, could move to a premium in the not-too-distant future. Crude oil has taken a breather after its 6% weekly rise. The larger-than-expected 7.2mm barrel inventory draw (4th consecutive week) has propelled the September futures price towards $49 and September Brent above $51. The gasoline and distillate inventories also drew, which indicates that demand may finally be increasing, and refiners are taking advantage of the high margins. Exxon's earnings tomorrow may be an important moment to gauge how the majors are handling the lower-for-longer price environment -- and if the investments in alternatives are starting to pay off.

Rising Copper Is Bad News for Tesla

The weakening dollar is filtering down to commodities, and metals prices are rising.

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