Housing starts in the United States rose at a faster annualized rate in November than in October, but that didn't do much for the price of copper in London. Is China to blame?
What's the connection? Despite chatter about the possibility of so-called peak copper at the beginning of this year, when the price of the metal hit an all-time high, and supply seemed to be caught in a long-term squeeze, the remainder of 2006 witnessed a steady downward trend in copper prices. The immediate cause: a contraction in Chinese imports -- in the first 11 months of 2006, China imported 35.5 percent less copper than in 2005.
That decline, in turn, may be largely due to the American housing slowdown.
A new home in the U.S. consumes 400 pounds of copper -- electrical wiring, plumbing, appliances. The yearlong collapse of the U.S. homebuilding sector has thus significantly depressed demand, and now, voilà, copper stockpiles all over the world are bulging. When stockpiles go up, prices go down.
So far, the financial press is interpreting the rise in housing start activity as another sign that the housing bust is "bottoming out." But don't look for copper to rebound just yet. New building permits declined again in November, the number of houses under construction fell, the rate of housing completions slipped, and more construction workers were laid off in November than in the month before. As noted two weeks ago, sawmills in the U.S. are getting hammered by the housing slowdown. Now it's clear that in China, manufacturers of pipes and appliances and electrical wiring are no longer as hungry for raw materials as in the very recent past. The entire global economy is slowing -- and it may have a ways to go before U.S. homebuilders can juice it up again.