Pitfalls and Pipelines - Philippine Indigenous Peoples Links

64 Pitfalls and Pipelines: Indigenous Peoples and Extractive Industries
copper and aluminium prices rose sharply despite large surpluses and
rising stocks: July 2005 to March 2006; and August 2009 to February 2010
[my italics].” Thus, “it looks as if there really may have been introduced a
new determinant of prices.” Since 2004, “over one million tons of long-only
copper futures have been bought and held by investors in CIFs.” So, asks
Holland: “[H]ow can this not have moved prices?” The shift appeared to
defy classic market theory that, when people want something and it’s in
short supply, it will become more valuable and thus stimulate production.
But, when the commodity is in surplus, the opposite should occur.
Holland went on:
Old-school commodity market analysts used to think in terms
of a market balance, which they defined as production minus
consumption, with resulting physical stock change and stock levels.
In that system of belief, physical stocks were taken to be almost a
passive dull burden which weighed down on prices—the more the
physical stock sitting on the market’s back, the lower stooped the
resulting price.
However:
Brokers saw things a little differently: balancing took place in the
futures market not the physical market. If stocks were below the
‘pinch point’ and prices were backwardated, 53 exchange stocks did
not depress prices at all. If stocks were above the “pinch point”
and prices were in contango, 54 it was the contango-earning hedge
sales of exchange stock owners that depressed prices. In contango
markets, exchange stocks were a dynamic, not a passive, force.
This discussion may well seem obscure to the layperson, and it’s not
necessarily very educative to probe it further. The key point is that such
trading—effectively betting on a price that is almost entirely removed
from the real movement of supply and demand—is increasingly distorting
public—and government—perceptions of our requirements for new
supplies of metals, and therefore new mines.