Tuesday, March 28, 2017

Buy This Copper Crunch

Investors are getting a case of the jitters watching copper’s recent trading action. Since mid-February, copper has been in a big correction. And it’s handing you an opportunity.



This pullback has implications for all kinds of markets beyond metals. Investors call this metal "Doctor Copper," because it has a Ph.D. in economics. When copper prices go higher, the global economy heats up. When copper prices go lower … well, you can see why people get worried.

Don’t worry. Be happy. And buy this danged pullback.

Let me show you the Big Picture in copper …



Longer term, copper broke out of a multi-year downtrend. So, some pullback is to be expected. And it’s a buying opportunity for copper and the companies that produce it.

Let me give you three copper-plated bulls for this year.

Lack of Big, Rich Deposits. Copper mines must be big to make any economic sense. They require a LOT of investment. Too bad that most of the big deposits have already been found. In fact, only six big new projects to build mines or expand existing operations will be completed by 2020.

Tightening the squeeze, the grade of copper ore coming out of the ground is half what it was in 2008. That means miners get half as much copper with every ton of dirt.

And the long bear market didn’t help. That forced copper companies to mine their richest grades. Now, that ore is gone — used up.

Watch China. Asia, especially China, accounts for 62% of the world’s copper usage. Sorry, Uncle Sam, but you use only 14%.

So, it’s bullish that imports of copper into China rose 1.9% in the first two months of 2017, to 2.7 million metric tons. In fact, Chinese copper demand looks poised to rise all year.

China is mainly used for copper wire. And a lot of that goes into infrastructure. China plans to spend $720 billion on infrastructure projects over the next three years.

Labor Troubles Squeeze Supply. So far in 2017, we have seen production stoppages at major mines like and BHP Billiton’s (BHP) Escondida mine and Freeport-McMoRan’s (FCX) Grasberg mine. Escondida alone produces 5% of the world’s copper.

Just in Chile alone, a whole gallery of copper companies face tough labor negotiations: Antofgasta with its Zaldivar Mine, Glencore with its Altonorte Mine, Anglo American and Glencore (again!) with their Collahuasi joint project, Teck Resources in its Quebrada Blanca Mine, and Lundin at its Candelaria Mine. And that means more production could be lost to strikes.



We’ve already seen 200,000 metric tons of copper production lost to strikes so far this year. Annualized, that would be 10% of global production.

Prices are made on the margin. So this all points to prices getting squeezed higher.

So why have copper prices — and miners — been under pressure lately?

Some investors fear that Donald Trump won’t be able to follow through on his plans to rebuild America’s infrastructure. A plan that requires a lot of copper.

But as I’ve shown you, the U.S. is a small piece of the global copper demand picture. China is much more important.

I think we should see a rally coming in the iPath Bloomberg Copper ETN (NYSE: JJC), which tracks copper prices.

The JJC has been in correction along with miners. But if supply gets crunched the way I think it will, this fund could follow copper prices much higher.

This story was originally posted on Uncommon Wisdom Daily 

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