Is this China’s Lehman Brother’s moment? When the government refuses to step in, instead allowing defaults to occur, when intervention could have prevented a bigger crisis? That may very well be developing. One needs to look no further than Copper to see this crisis starting to unfold.
First, some background on Copper: it is a highly malleable metal with many industrial roles, including serving as a conductor for heat and electricity as well as a building material. But Copper has another role, specifically in China, which is why it appears that a financial crisis is brewing. It’s been estimated that roughly 60-80% of Copper imports over the past few years have been used as collateral for borrowing (Reuters).
Where to now in Copper? If Chinese firms have been using the malleable metal as collateral the past few years, there is reason to believe that Copper isn’t the global bellwether that we thought it was. But that doesn’t necessarily mean that traders will discount Chinese data’s influence on Copper either.
Written by Daniel Elo, www.economiccalendar.com
