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The Andina copper mine, 80 km northeast of Santiago, Chile. China's State Reserve Bureau made a strategic decision last year to stockpile copper, convinced that the metal was caught up in a "super-cycle" of commodity price escalation.

Ivan Alvarado/Ivan Alvarado/Reuters

The price of copper surged again on Wednesday morning on the London Metal Exchange. It's the third day of continuous increase and it might be nice to think it was a gesture from metals traders in anticipation of the rescue of the 33 Chilean copper and gold miners from a dungeon deep beneath the Atacama desert.

Sadly, copper investors don't care about miners except when they go on strike and the disaster which stopped production at the San Jose mine is a sideshow compared with the situation at Escondida, another Chilean hole in the ground and the world's biggest copper mine. Escondida's output has been falling and global output of copper is flatlining at a time when China is sucking up every scrap of red metal it can lay its hands on.

More copper wire to feed factories making electronic gadgetry and more copper pipe for Cina's construction boom. China has been hoarding copper. Convinced that the metal was caught up in a "super-cycle" of commodity price escalation, China's State Reserve Bureau made a strategic decision last year to stockpile copper and the bureaucrat traders built up a stockpile of almost 300,000 tonnes. According to reports in the Financial Times, earlier this week, the SRB has made a profit of $1.5-billion from the subsequent rise in the copper price.

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They did well but short-term profits are not the reason for the SRB's trading ploy. The purpose of the institution is to secure supply and China's belief in the super-cycle -- that the world is in the grip of a long period of rising prices following decades of weakness -- has a certain logic given the country's key role in sustaining demand for metals. China kept on buying and hoarding copper, iron ore, zinc and crude oil even as commodity price collapsed in the fnancial crash of two years ago and when pundits sneered that the supercycle was superbust.

Meanwhile, the financial markets are creating new sources of demand that have little to do with the fundamental drivers such as the copper in your home and in your cellphone. Wednesday's 1 per cent gain in copper coincided with another slump in the U.S. dollar. As investors flee the Federal Reserve's campaign to create inflation in America, they need to find a store of value somewhere else. Some look for yield in emerging markets and others store cash in metals and oil.

It seems crazy, but stuff that is consumed, that generates zero income but instead costs money in storage is in high demand. Earlier this year, we heard tales of Chinese pig farmers hoarding red metal, and prospectors are looking at Afghanistan, that hideous minefield, as a future resource of iron ore, copper and lithium. It will take time to dig these mines but China wants the metal now.

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