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China’s little black book...in commodities |
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by: Jeannette Rohn Showalter, CFA
February 1st, 2012
The little black book is often an address book of closely guarded names and phone numbers, often referenced in a dating person’s world but also some in business. In a sense, China keeps a little black book and the numbers are its secretive holdings in gold, copper and grains… and maybe more. In a world where other developed and developing countries are up front about warehoused holdings, this makes for less than best trading relations.
Gold-
As reported in the World Gold Council’s release on January 12, 2011, the “World Official Gold Holdings” as of November 2011 shows that the US leads all countries in ownership of gold at some 8,133 tons; distant but with sizable holdings are Germany, Italy and France; China is listed in fifth place with an “estimated” 1,054 tons of gold. Unfortunately, China is unwilling to report its gold holdings on a regular basis; the last official report by the People’s Bank of China was June 30, 2009. (Source: I-Net Bridge News, January 16, 2012)
Copper
“Beijing releases only sketchy information about its supply, demand and inventories, creating a statistical vacuum that is contributing to (copper’s) price volatility.” (Financial Times, October 12, 2011, “China reveals size of copper inventory”) So, when China did release copper inventory figures for the first time ever, the copper industry was very surprised. And even when made public, the releases are not fully made public: “The estimates, which were announced at a recent meeting of the International Copper Study Group but have not been made public, imply that real Chinese copper demand may have been lower than thought in recent years” Yearend 2010 inventory was 1.9 M tons.
Grains
“How much grain has China stockpiled? “ was the title of my November 11, 2011 commentary; “China does not disclose how much it holds in its grain reserves and the world’s market players do not like this. The quantity and price for stockpile purchases is determined by the China Grain Reserves Corporation, a state owned entity. The World Bank has been pressuring China to disclose its annual production and its grain storage. China does report bi-annually production numbers but hasn’t reported its grain reserves since 2008 when Premier Wen Jiabao reported reserves of 150 to 200 million tons.”
Now why doesn’t China play ball like the other countries do? In my opinion, they play to win, they play to confuse the rest of the world, they play to use every possible means to buy at better prices and sell at higher prices. My phobia? I think not. According to DTN Grains, December 7, 2011 “Ag Summit”, China recently revealed grain usage but, “The implication is that China isn't being forthright about its corn production and needs for its domestic livestock industry. There is no sign of China moving toward more transparency on agricultural production, even though the country will likely be buying more corn."It's totally a state secret in China what their grain situation is going to be and I don't see that changing," David Nelson (a global strategist for Rabobank International), said.
The world of commodities now includes a dominant player which will not reveal inventory and usage in any sort of transparent and cooperative way. But price does reveal the ultimate story! And that is why price REALLY matters and why trend following futures trading systems have value.
Bald Eagle Survival Plan, Mini Survival Plan, and Diversified Commodity Basket trade a variety of the aforementioned commodities.
Jeannette Rohn Showalter, CFA
An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources, and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
This is provided for informational purposes only. No statement in this blog should be construed as a recommendation to buy or sell a futures/options contract or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness.
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