Copper's Crashing Prices Cause Devastating Economic Ripples Around the World
Copper prices fell to $4920 per tonne on Monday, before recovering slightly. The price has been crashing, and is down 21% so far in 2015, after falling 16% in 2014. The current price is at a six-year low, just above the low of the financial crisis six years ago. The crash is expected to continue, with predicted prices at $4800 at the end of this year, and $4500 at the end of next year.
Just as the 60% collapse in the price of oil has been disastrous for exporting countries around the world, including Russia, Iran, Saudi Arabia and Venezuela, the collapse in the price of copper is rippling throughout the world.
The copper crash is being mostly blamed on the slowdown in China's economy, which is also causing drops in prices of coal, oil and metals.
The copper crash is causing crashes in the prices of stocks for mining companies. Miners are some of the largest companies in the world, responsible for hundreds of thousands of jobs in many countries. The world's largest miner is Melbourne-based BHP Billiton, whose stock price has fallen 29% in the last three months. The second-largest miner, also Melbourne-based, is Rio Tinto, which is less dependent on copper, has limited it's stock declines this year to 30%.
However, stock prices for Swiss-based Glencore Plc, the world's third-largest copper miner, fell 30% on Monday ALONE.
Glencore Gloom Envelops Rivals as Asia Commodity Shares Drop
The company’s almost 30 percent plunge in London on Monday reverberated around Asia as Australian miners BHP Billiton Ltd. and Rio Tinto Group slumped with trading companies including Noble Group Ltd. PetroChina Co. was among Chinese oil explorers caught up in the selloff. While Glencore sank by a record in Hong Kong as trading resumed after a holiday, its stock was 6.7 percent higher at 8:50 a.m. in London.
The result is a disaster for the African country Zambia, whose economy is heavily dependent on the price of copper. Glencore has announced plans to suspend operations in the country, which will result in the loss of thousands of jobs. Zambia's currency, the kwacha, fell 13% against the dollar on Monday alone. Glencore is also suspending operations in the Democratic Republic of Congo.
Stock prices for another copper mining company, Phoenix AZ based Freeport-McMoRan Inc., fell over 10% on Monday, with the stock price now down 61% since the beginning of the year. Freeport announced earlier this month that it's cutting in half its operations in Chile, and will be laying off hundreds of workers.
As I've been saying for many years, the world is in a deflationary spiral in this generational Crisis era. Deflation has gripped economies in Europe, America, China and Japan.
The deflationary spiral is affecting global stock prices, which fell to a two-year low on Tuesday, at the end of the worst quarter in years.
Generational Dynamics predicts that there will be a global financial crisis and stock market crash, bringing the Dow Jones Industrial Average below 3000.DYI Comments: As to Dow 3000 that is even a bit of a stretch for DYI, however the Dow between 8,000 to 6,000 is very doable for a secular bottom. This may take more than one complete cycle to complete the downward spiral for valuations to bottom out.
I would not be surprised at the secular bottom the Dow Jones Industrials dividend yield trading in the 6% range. Sentiment for all U.S. stocks will be their bottom. Currently today stock prices are riding high and so are my sentiment indicators.
Market Sentiment
DYI Continues: Precious metals and mining companies is another matter as their share prices have been beaten down creating a buying opportunity for the long term investor. Dollar cost average only how far and how long this deflationary smash will run is anyone's guess. With prices off anywhere from 40% to 70% for many of these companies you are at an excellent starting point for accumulating shares at depressed prices. DYI's favorite is Vanguard's Precious Metals and Mining Fund symbol VGPMX.
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