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A Perfect Storm Brewing for Copper Mining Stocks?

Copper Predicted to Rebound in 2013  

Although copper prices hit a one-month low this week, we believe the broader global trend bodes well for copper prices to rebound through the remainder of 2013.  The convergence of emerging market demand, a global boom in infrastructure development and a constraint on new supplies of copper will pus copper prices higher.

Prices will be influenced by demand from China and emerging markets, economic activity in the U.S. and other industrialized countries and especially a renewed international and U.S. push to rebuild global infrastructure.

Limited New Supplies of Copper  

A major factor will be the timing of new supplies of copper and production levels of mines and copper smelters.  Companies that have a high leverage to copper prices will benefit immensely from the potential demand for the metal in the developing markets.  We believe that a slowdown in developing new copper supplies presents a major investment opportunity.  Copper mining stocks that are well positioned to capitalize on this slowdown and poised to quickly develop new supplies of copper supplies represent a significant investment opportunity.

Temporary Weakness, but Strong Outlook.  

Weaker-than-expected U.S. housing construction data and worries about China’s real estate market fueled concerns about future demand for copper.  China accounts for 40% of global copper usage.  And real estate construction is a major drive of copper demand.  This week’s $3.63 per pound price on the Comex division of the New York Mercantile Exchange is the lowest traded price since Jan. 17.

Traders still see positive signs in the U.S. housing report, however.  Compared with a year ago, new U.S. home sales were up 23.6%.  Investors follow construction data closely for clues about future demand for copper.  Analysts at Goldman Sachs said in a report, “The ongoing structural recovery in U.S. housing activity is set to be an important contributor to global copper demand growth (as well as market sentiment) in 2013, and should be a bullish drive of copper prices.”  Goldman reiterated its forecast for copper prices to reach $4.08 per pound within the next six months.

Talk that China might introduce new restrictions for its property market also drove copper prices lower.  Some local Chinese governments set limits on mortgage lending to dampen speculation as property prices in major Chinese cities rose for the first time since 2011.

Copper Prices Correlate Strongly to Economic Outlooks  

Copper ranks third after iron and aluminum in terms of consumption of industrial metals.  It is particularly important for infrastructure development.  Construction comprises the single largest market for copper, followed by electronics, transportation, industrial machinery and consumer products.  We witnessed record high prices for copper from 2006 to 2008 as growing demand from emerging economies and, in particular, China powered a surge in prices and very low inventory levels.  Then prices dipped in December 2007 to a low of $1.26 per pound due to the U.S. financial market crisis, concerns about the global economy and reduced consumption.  However, Copper prices bounced back to an average of $4.00 per pound in 2011 and averaged $3.61 per pound in 2012 – a drop of 10% from 2011.  This drop reflected concerns about China’s slowdown, the European sovereign debt crisis and a sluggish U.S. economy.

The drop in price has hurt the results of major copper producers like Freeport-McMoRan Copper & Gold (NYSE:FCX), Southern Copper (NYSE:SCCO) and Newmont Mining (NYSE:NEM) – all of which suffered in 2012.

Long-term Bullish View on Copper

Nevertheless, in spite of its volatility, we have a long-term bullish view on copper.  Our perspective is supported by copper’s widespread use in construction, limited supplies from existing mines and especially the absence of major new development projects.

Zack’s Industry Outlook (Feb. 14, 2013) stated that all signs point to a recovery in copper prices driven, in part, by accelerated production among Chinese manufacturers.  Morgan Stanley predicts copper prices will rise 7.6% in 2013 to $3.88 per pound or $8,554 per metric ton (MT), up from $7,952 in 2012.  HSBC’s chief economist, Hongbin Qu, said last week that, “Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China’s ongoing recovery in the coming months.”  And Bloomberg reported that the forecast for rising copper prices is based on anticipated demand increases from China, the U.S. and even Europe.

Global Infrastructure Investments will drive Copper Higher  

The push to expand global infrastructure is a key indicator in our belief that copper prices will continue to push higher through the remainder of 2013.  Consider these key indicators driving global infrastructure investments:

Emerging Markets.  Growth in the emerging markets, particularly China and India, was a major driver of copper demand over the last few years. However, of late, demand in China has slowed down. China’s recent $150 billion infrastructure stimulus has helped improve the sentiment somewhat and holds promise for the metals and mining industry going forward, as we note below.  This global economic slowdown is the biggest headwind for the metals space overall at present.  Nevertheless, the long-term picture remains a lot more promising as the emerging market economies are expected to get back in shape with the help of expected fiscal and monetary stimuli.

China’s Infrastructure Expansion.  China’s economy is beginning to rebound even though the pace of the recovery will be slower than previous periods.  China’s new leadership recently announced fresh stimulus measures that will likely bolster demand for copper. Although Chinese exports remain weak, the good news is that home prices and homes sales in China are rebounding.  The new Chinese leadership has reiterated its support for a conventional mix of proactive fiscal policy and many analysts believe they will be successful in boosting growth from +7.8% in 2012 to +8.0% in 2013 and +8.3% in 2014.  The implication for the construction market is that growth will continue.  The stabilization in investment since mid-2012 has prevented China’s slip toward a feared hard landing, supported by a V-shaped recovery in infrastructure, which hit a trough with a -4% contraction in the first two months of 2012, but is now increasing by nearly +15% year-on-year.

The main construction driver in China will continue to be infrastructure.  Although the heyday of growth for China’s construction market may be over, the sheer size of the market will keep it among the most attractive in the world for the foreseeable future.  China’s new leaders are pushing a new type of urbanization that has major implications for the construction sector and, in turn, for copper prices.  In particular, their “intelligent city drive” which relies on modern information technologies such as telecommunications and cloud computing, will involved the building of intelligent systems serving a wide range of sectors from public security, healthcare, transportation and the power grid.

Group 20 Global Infrastructure Push.  A hot topic this week in Moscow at the The Group of 20 agenda is an issue that has long affect emerging markets’ economic growth plans:  weak infrastructure.  India has called for better infrastructure funding.  Russia has made investment financing a priority on how to kick-start global growth.  In emerging Asia, much-needed infrastructure projects fall through as a result of funding problems. The World Bank estimates that countries in the East Asia Pacific region need $400 billion of investment in infrastructure annually, while South Asia needs around $200 billion.  Infrastructure spending will remain a key issue throughout 2013.  This focus on construction will only serve to drive global demand for co copper.

Obama’s “Fix it First” Policy.  President Obama’s recent State of the Union plan to repair the nation’s ailing infrastructure should not be overlooked.  His “fix it first” policy calls for investing $50 billion in transportation infrastructure.  Obama also called for the creation of a National Infrastructure Bank to bring public and private financing together to plan projects.  Coupled with the U.S. housing recovery we touched on earlier, we believe the U.S. will certainly contribute to what we believe will be a growing demand for copper in 2013.

Bottom Line:  The bottom line here is that the global push to rebuild infrastructure will almost certainly create a knock-on effect that will drive the prices of industrial metals higher.  Copper promises to be at the forefront of that trend.

Supply Constraints will Drive Demand Higher.  

Copper prices will be heavily influenced by the timing of new supplies of copper and the production levels of mines and copper smelters.  Companies that have a high leverage to copper prices will benefit immensely from the potential demand for the metal in the developing markets.  Cost inflation in the sector is also expected to be a headwind for metal and mining companies over the next several years, driven by a number of factors such as labor, energy, ore grades, currencies, supply constraints and taxes.  Plus, global economic uncertainties, softening commodity prices and higher input costs are increasing the pressure on company margins.

To counter all this, mining and metals companies must constantly review their portfolios to identify underperforming assets and shut down or divest high cost and non-core assets.  Industry consolidation, automation technology, owner-operated mines and investment in energy assets are some of the steps that companies can take to offset to the impact of rising costs.

Production drops for World’s Largest Copper Company.  

Expanding copper mining production continues to be a challenge for Chile’s Codelco, the largest copper producing company in the world.  Codelco (the National Copper Corporation of Chile) is the Chilean state-owned copper mining company, formed in 1976 from the foreign-owned copper companies that were nationalized in 1971.  Codelco produced 1.66 million tons in 2007 – 11% of the world total.  It controls about 20% the total global copper reserves.  They recently reported that their own production dropped in 2012 to the lowest level in four years.  And figures from the last monthly newsletter issued by Cochilco (Chilean Copper Commission) show that the state-owned copper company produced a 5.1% less copper in 2012 if compared against 2011.  According to CEO, Thomas Keller, Codelco’s 2012 production was down primarily due to “dwindling ore grades” in all its deposits.  BHP executive, Peter Beaven, recently told an industry gathering in Santiago, “Mining in Chile is at a turning point as the industry requires large expenditures just to maintain throughput.”

Copper miners across the globe continue to expand production.  Grupo Mexico (OTC Pink: GMBXF) plans to spend $2 billion on its mining division this year, a portion of which will go towards the company’s Buenavista mine in Northern Mexico.  The company wants to produce 1.4 million metric tons of copper per year by 2015, Reuters reported.  BHP Billiton (NYSE:BHP) expects its copper production to increase in 2013 and 2014 by a 10% compound annual rate, largely driven by its Escondida mine in Chile, which is on track to increase its production by 20%.

Freeport-McMoRan’s (NYSE: FCX) fourth-quarter net income rose 16%, to $743 million, as sales in the previous year were depressed by labor disruptions in Indonesia.  The company aims to grow its annual copper production to over 5 billion pounds per year in 2015 from 3.66 billion pounds in 2012, and expects its $20-billion acquisition of Plains Exploration & Production (NYSE:PXP) and McMoRan Exploration (NYSE:MMR) to close in the second quarter of this year.  Union workers at two of Southern Copper’s (NYSE:SCCO) properties in Peru may go on strike if they don’t reach an agreement with the company within 15 days, Fox Business reported, citing a union leader.

Back to copper, the metal is essential for modern living. It delivers electricity and clean water into our homes and cities and makes an important contribution to sustainable development. More than that, it is essential for life itself. Copper is interwoven with the story of humanity’s progress. It has crucial role in our homes, in transportation, as well as in infrastructure and in our industries is omnipresent.

Economically, copper consumption is closely associated with industrial production, and therefore, tends to follow economic cycles. During an expansion, demand for copper tends to increase, thereby driving up the price. As a result, copper prices are volatile and cyclical. Swingplane Ventures has seen some analysts pick up as one research firm just issued a $10 target price on Swingplane Ventures. The firm said that a due diligence property evaluation suggests there is a significant opportunity to further develop the mineral potential of the property and dramatically increase the current level of production. The company intends to evaluate potential to: 1) increase the current level of production and 2) undertake construction of a processing facility to maximize recovery of economic grades of copper concentrate.

Notably, in early January, First Quantum Minerals, a $9 billion mining company, made an offer of $5.1 billion to purchase Inmet Mining which holds a very coveted copper mine in Panama. Inmet Mining, a company with a prized copper mine has almost doubled in market valuation this past year alone. Swingplane Ventures operates in the copper market in Chile, located in South America. This part of the world has been proven to possess extremely profitable copper mines as seen by First Quantum’s offer for Inmet. After further due diligence and research, we are upgrading the stock to $11.50 with a possibly buyout looming.

There have been some worries surrounding copper because of the short-term macroeconomic concerns regarding the US and Europe. However, the fundamentals are still excellent for copper: as Asia represents over 60% of world demand with China by itself at 39% and could reach 45% in 5 years. Southern Copper forecasts that China and Emerging Markets countries will continue growing, albeit at a lesser pace, but still showing substantial gains. The company also notes that limited production upside and falling grades will result in a deficit copper market going forward.

Now, we take a closer look into a recent news item for the metal signifying of some larger trends. The fundamentals for copper are clearly improving as the world’s copper usage and demand for copper is picking up. Friday, was a prime example of that as copper futures rose the most in a week as China’s trade expanded more than forecast, and car sales jumped to a record in the Asian nation, the world’s biggest consumer of industrial metals. In January, exports from China surged 25% and imports climbed 29% from a year earlier, both topping projections by economists in Bloomberg surveys, government data showed today. Sales of passenger vehicles surged 49%, a state-backed trade group said. A 6 month price chart of copper follows.

Knowing that we are not the only ones bullish on the metal has given us more confidence in our own thesis. This fact was demonstrated this week when Kevin Puil, the Malcolm Gissen & Associates portfolio manager, went through his bullish thesis on Seeking Alpha. Puil said “The fundamentals for copper remain highly favorable and I continue to see secular demand for most commodities, copper in particular. Industrialization and urbanization, especially in the BRIC [Brazil, Russia, India, China] countries, is not about to stop, and this continues to put pressure on copper miners, who struggle to keep up with demand. Supply growth has slowed due to lower grades, higher costs and political unrest. In addition, the new projects and mine expansions that were scheduled to come on-line haven’t materialized, and if they do, it will not be in a timely fashion. Quite frankly, I think you could see copper peak above $4 a pound [$4/lb] this year…”

The decline in output that Puil discussed is already being seen in the financial markets as Teck Resources (TCK), Canada’s largest diversified miner, may consider acquisitions in copper mining to help offset an expected decline in the company’s output of the metal.

(HBM) is a Canadian integrated mining company with operations, development properties and exploration activities across the Americas principally focused on the discovery, reduction and marketing of base and precious metals. The company’s objective is to create sustainable value through increased commodity exposure on a per share basis by growing long-life deposits in high-quality and mining-friendly jurisdictions. HudBay is a strong stock with great analyst coverage. Of the five analysts currently covering HBM, all five have buy ratings or higher.

Southern Copper (SCCO) is one of the largest integrated copper producers in the world, and has the largest copper reserves of the industry. The company produces copper, molybdenum, zinc, lead, coal and silver. SCCO is 81.3% owned by Grupo Mexico, a Mexican company listed on the Mexican Stock Exchange. The remaining 18.7% ownership interest is held by the international investment community. All of its mining, smelting and refining facilities are located in Peru and Mexico, and the company conducts exploration activities in those countries and Chile. Southern Copper has performed quite well recently with shares soaring more than 23% over the course of the past three months.

China’s Jiangxi Copper (SSE:600362) and Japan’s Pan Pacific Copper said mining companies will pay “at least 10% more in fees” to process copper this year, China Daily reported.  And Chinese mining companies have invested more than $1 billion in copper.  Newmont Mining (NYSE:NEM) expects gold and copper production in 2013 of approximately 4.8 million to 5.1 million ounces and between 150 and 170 million pounds, respectively. The company plans to spend up to $2.3 billion on various projects this year.  Sierra Metals (TSXV:SMT) announced that in 2012 its copper production rose 51%, to 15.9 million pounds, from the year before.  For 2013, it expects copper production of up to 23.1 million pounds.

Bullish Stance on Copper

Notwithstanding the current volatility in prices, we have a long-term bullish stance on copper, supported by its widespread use, limited supplies from existing mines and the absence of significant new development projects. Prices will be influenced by demand from China and emerging markets, economic activity in the U.S. and other industrialized countries, the timing of new supplies of copper and production levels of mines and copper smelters.  Companies that have a high leverage to copper prices will benefit immensely from the potential demand for the metal in the developing markets.

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Copper Rally Continues To Give A Buy Signal For These Two Stocks

Copper continues to play an important role in the world as its superior electrical conductivity, corrosion resistance, structural capability, efficient heat transfer and aesthetics make it a popular ingredient of many industrial products. This popularity has led to multitude of multinationals being involved in the mining of the metal with the two of most well-known copper miners being Freeport-McMoRan (FCX) and Southern Copper (SCCO).

First mined by man more than 10,000 years ago, copper today is one of the most common and versatile metals in use around the world. It is an internationally traded commodity, and its price is effectively determined by the major metals exchanges- the London Metal Exchange, the New York Commodity Exchange and the Shanghai Futures Exchange. Prices on these exchanges generally reflect the worldwide balance of copper supply and demand, but from time to time, they are also influenced significantly by investment flows and currency exchange rates.

Copper prices have rallied over the past 3 months, rising from about $3.45/lb to about $3.70/lb at today’s prices. The rally is expected to continue as the economic data from some of the world’s biggest economies continues to improve.

Copper is found in many places in the world, but Chile is a notable hotbed for Copper. Chile is not only the largest copper producer in the world, but also the country with the largest worldwide reserves of the red metal, reveals the latest commodity report by the U.S. Geological Survey. According to the agency, Chile has 28% of the world reserves, more than twice the reserves of its neighbor, Peru, the No. 2 global copper producer. It means that the South American country has reserves of 190,000 million tons of copper — 26% more than it was thought (150,000 million tons) — which guarantees copper extraction for the next 100 years, at the current extraction rate.

The economic data has been the big driver behind copper gains, and here is an overview. The news from China has been positive. China’s economy grew by 7.9% year over year in the fourth quarter, up from 7.4% in the third quarter. The news provided relief to commodity bulls, who feared that the world’s second-largest economy may have continued to slow after growing at the weakest pace in three years in Q3. Instead, it seems as if China’s growth may have stabilized above the official government target of 7.5% — a positive outcome.

Analysts have also come out positive on the metal. One analyst recently said that the economic recovery and growth should push prices up. “Copper is one of those metals that people feel is linked to the industrial cycle,” said Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “Demand is obviously returning, we’ve had good numbers coming out of China and the U.S. definitely looks as if it’s in a recovery trend.”

HSBC raised its 2013 copper price forecast, saying it expects positive sentiment to drive prices for the metal in a structurally balanced market. The bank lifted its 2013 forecast for the average cash copper price to $8,000 per ton from $7,500 (London’s copper metric) to reflect the metal’s relatively good start to the year. “Copper, perennially described as fundamentally tight, actually finished 2012 posting a gain in inventories,” analyst Andrew Keen said in a note to clients. “This market remains balanced in our view, and this is enough to keep prices high when sentiment is good.”

With that said, the copper sentiment is positive, and should continue to be so. As a result below are two great stocks to own to play off this copper rally:

HudBay Minerals (HBM) is a Canadian integrated mining company with operations, development properties and exploration activities across the Americas principally focused on the discovery, reduction and marketing of base and precious metals. The company’s objective is to create sustainable value through increased commodity exposure on a per share basis by growing long-life deposits in high-quality and mining-friendly jurisdictions. HudBay is a strong stock with great analyst coverage. Of the five analysts currently covering HBM, all five have buy ratings or higher.

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Copper is an industrial metal and therefore, it is very sensitive to economic cycles. Copper has a variety of uses, and it is a key component of every-day life, from the coins in our pockets to the powerlines that provide us with electricity. Furthermore, its extensive use in “green” technologies, such as solar cells and electric vehicles, ensures that copper will continue to play a key role in our sustainable future. Copper is conductive, durable, malleable, and eminently recyclable, making it one of the world´s most useful natural resources.

There have been some worries surrounding copper because of the short-term macroeconomic concerns regarding the US and Europe. However, the fundamentals are still excellent for copper: as Asia represents over 60% of world demand with China by itself at 39% and could reach 45% in 5 years. Southern Copper forecasts that China and Emerging Markets countries will continue growing, albeit at a lesser pace, but still showing substantial gains. The company also notes that limited production upside and falling grades will result in a deficit copper market going forward.

Two weeks ago, China’s neighbor, Japan, also reported positive economic news. Japan raised its expectations for the economy for the first time in eight months, as private consumption held firm and business sentiment improved in a sign that Prime Minister Shinzo Abe’s policy of easy money and big spending had begun taking effect. “The economy is weak, but signs of bottoming out can be seen in some areas,” the report said. That was an improvement from last month, when the government said the outlook was weakening because of a slowdown in overseas economies. HBM has performed substantially well the past three months with shares rising over 26%.

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HBM is a quieter and smaller copper name, but nonetheless, is an interesting one to take a look at with the growth projections. HBM expects its copper production to increase 390% between now and 2015, with a 115% increase in precious metals production and 30% growth in zinc over the same time period, which are some pretty hefty growth figures. There also is significant downside protection built in with its balance sheet containing $1.4 billion of cash.

Swingplane Ventures (SWVI.OB) is one company involved in copper one of the newer entrants in the space. Already though, the company is generating a buzz as can be seen by the stock chart.

The company owns one major property, the Algarrobo Property that is located in Chile. The mineralized trends for the mine are very well defined at surface through abundant workings, both historical and from more recent work. The workings range from shallow pits and near surface workings to more extensive mine development extending up to 450m below surface.

Swingplan Ventures has seen some analysts pick up as one research firm just issued a $10 target price on Swingplane Ventures. The firm said that a due diligence property evaluation suggests there is a significant opportunity to further develop the mineral potential of the property and dramatically increase the current level of production. The company intends to evaluate potential to: 1) increase the current level of production and 2) undertake construction of a processing facility to maximize recovery of economic grades of copper concentrate.

Notably, in early January, First Quantum Minerals, a $9 billion mining company, made an offer of $5.1 billion to purchase Inmet Mining which holds a very coveted copper mine in Panama. Inmet Mining, a company with a prized copper mine has almost doubled in market valuation this past year alone. Swingplane Ventures operates in the copper market in Chile, located in South America. This part of the world has been proven to possess extremely profitable copper mines as seen by First Quantum’s offer for Inmet. After further due diligence and research, we are upgrading the stock to $11.50 with a possibly buyout looming.

Now, we take a closer look into a recent news item for the metal signifying of some larger trends. The fundamentals for copper are clearly improving as the world’s copper usage and demand for copper is picking up. Friday, was a prime example of that as copper futures rose the most in a week as China’s trade expanded more than forecast, and car sales jumped to a record in the Asian nation, the world’s biggest consumer of industrial metals. In January, exports from China surged 25% and imports climbed 29% from a year earlier, both topping projections by economists in Bloomberg surveys, government data showed today. Sales of passenger vehicles surged 49%, a state-backed trade group said. A 6 month price chart of copper follows.

Recent news for Swingplane included the President’s discussion of the property. The Algarrobo Property is located approximately 850 km north of Santiago, in the III Region, Province of Copiapo, Chile. The city of Copiapo is located approximately 43 km to the southeast of the Property, with the small port city of Caldera 25 km to the east. The Property consists of 32 tenures, comprising a total of 6,161 hectares.

The current limited artisanal workings are now producing 9% copper ore on 10 acres. The 3 current veins that are being worked on have been trenched and sampled and shown to be over 6 km in length. From existing information on adjacent mines ie: the Viuda Mine, which is 250 meters in depth, the evidence suggests that the company has the same formation.

Knowing that we are not the only ones bullish on the metal has given us more confidence in our own thesis. This fact was demonstrated this week when Kevin Puil, the Malcolm Gissen & Associates portfolio manager, went through his bullish thesis on Seeking Alpha. Puil said “The fundamentals for copper remain highly favorable and I continue to see secular demand for most commodities, copper in particular. Industrialization and urbanization, especially in the BRIC [Brazil, Russia, India, China] countries, is not about to stop, and this continues to put pressure on copper miners, who struggle to keep up with demand. Supply growth has slowed due to lower grades, higher costs and political unrest. In addition, the new projects and mine expansions that were scheduled to come on-line haven’t materialized, and if they do, it will not be in a timely fashion. Quite frankly, I think you could see copper peak above $4 a pound [$4/lb] this year…”

The decline in output that Puil discussed is already being seen in the financial markets as Teck Resources (TCK), Canada’s largest diversified miner, may consider acquisitions in copper mining to help offset an expected decline in the company’s output of the metal, Chief Executive Officer Don Lindsay said. “Copper is a priority for us with declining production for the next couple of years,” Lindsay said on a conference call to discuss the company’s fourth-quarter results. “Something that might fill the gap would be of interest to us.”

Based on size and time on the market, Swingplace Ventures most closely compares to HBM, which rose to $7 a share in its first year on the market.

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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.