Commodities: A Wild Ride but Bullish from Here On

Commodities have been riding the roller coaster of the market and have been some of the hardest hit during the times of the recession. Despite this, I believe Metals and Mining to be a Bull Market. What falls under this category? Well all metals such as aluminum, nickel, zinc, iron, ore, coal, and most importantly copper. Why will these go up? Read and find out.

Metals Outlook

In 2010, I foresee Copper sales and earnings to rebound after falling in 2009. This is backed by the forecasts that the price of metals will rise in 2010 due to both the recovery in the global economy and basic supply and demand. With advancements in infrastructure across the globe from the U.S., U.K. and Europe to emerging markets such as China, Brazil, Middle East, India and Africa we are seeing commodity levels stabilizing and overall demand is growing. With capital and financial markets easing we are seeing increased spending and lending for new capital projects. This has been a huge bull market in emerging markets like China, India and Africa. In 2008 and 2009, the lending dropped off freezing up capital markets and stalling all infrastructure projects leading to a fall in demand for commodities, which crashed the overall prices. Though as you can see now these projects are back on and lending has come back especially in China where the lending policies are very liberal. Other indicators will also push up the price of commodities. In 2010, it is expected for GDP growth to increase 1.2% after falling 2.2% in 2009. More cash in hand increases demand therefore making commodities more desired again.

Copper is the Best!!!

My most favorite metal is Copper and demand for copper is expected to increase by 1% in 2010 after falling 4% in 2009. To add to this the price of Copper is expected to skyrocket in 2010 jumping to $2.90 a pound from $1.80 in 2009. This is great news especially if you are invested in copper based stock such as the Mongolian Mining Giants Ivanhoe (IVN). Moving on construction is expected to pick up in 2010 therefore another indicator to increase demand. The U.S. is currently the world’s second largest consumer and economist predict that money pledged to construction will increase more than 1% and a 2.5% increase in homebuilding. China has offset some of the demand by stockpiling commodities throughout 2009 though I don’t see that as much of a long-term concern. Look for demand to outweigh supply greatly within the next year as the output of existing mines wears out and looking forward there are very few new mines under construction. There is also belief that the mining industry will consolidate sending prices higher. Long-term however secular demand will grow for basic metals. The industrialization of China, India, and Africa will lead to great demand along with the increased capital spending in the United States.

How to Play this Bullish Market?

So how to play this market? My favorite play would have to be copper. Out of all the metals I think copper has the most potential as demand and prices increase. Copper prices are supposed to reach an all-time high in 2010 topping the 2007 highs. Three major players within the Copper industry are: RioTinto (RTP), Companhia de Vale (VALE), and Ivanhoe Mines (IVN). Of these three my favorite is Ivanhoe. As I mentioned before mines around the world are becoming depleted therefore increasing demand. Short-term this is good but long-term the need for new mines and metals is more important towards further growth. Well, Ivanhoe is partnered with RioTinto on building the world’s largest Copper Mine in the Oyu Tolgoi of Mongolia. They have been negotiating with the Mongolian government for quite some time now, however if a deal is in place the sky is the limit. This would make them the major player in the world’s market and the main seller to China due to their close proximity. Ivanhoe with an IA agreement is worth $13-$15 a share. Looking back on the sector as a whole however I believe it is a bull market for the next several years to come.