Two Factors Suggesting Copper Prices Setting Up to Surge
Copper prices are up roughly five percent since the beginning of the year. Don’t ignore the red metal. There could be major upside ahead in 2016 and beyond.
When you are looking at copper prices, there are two factors you must pay attention to: China, and central banks around the world. These two factors have the ability to send copper prices skyrocketing well beyond the highs made in 2011—about 107% from where copper currently trades.
If you look closely, you will notice there’s a “copper rush” happening in China. Don’t take this lightly. A few years back, China was a major buyer, and as a result, copper prices surged.
Consider this: in the first quarter of 2016, 1.43 million tonnes of copper was imported into the country. This was 30.1% higher than the same period a year ago! (Source: “UPDATE 1-China copper imports hit record in March, up 30 pct in Q1,” Reuters, April 13, 2016.) Mind you, in March, 570,000 tonnes of the red metal was imported into the country—this was the highest monthly copper imports on record.
In the simplest words possible, if China continues to buy at this pace, it will create major imbalances in the copper market and take copper prices much higher.
As for central banks, know that their actions could give a big boost to copper prices.
You see, central banks around the world are focused on bringing growth to their economies. They are each doing this in a very similar way—lowering interest rates and/or printing money. The list of central banks involved in this behavior is increasing on a very frequent basis.
With this, you have to remember one thing: when central banks lower rates and/or print money, they are essentially selling the idea that economic growth will occur down the road. Copper thrives on higher economic growth talks.
Want proof? Look at the copper price chart below. Pay attention to what happened to copper prices in 2008 and beyond.
Chart courtesy of www.StockCharts.com
In 2008, the global economy was struggling. As a result, copper prices plummeted. In early 2009, we started to hear central banks around the world come up with plans to save the global economy—quantitative easing and zero interest rate policies were born in that period. This phenomenon caused copper prices to shoot higher. By early 2011, copper prices had rallied over 250%.
Sadly, after 2011, it started to become evident that the global economy hadn’t improved much and the troubles remain. On the back of this, copper prices declined.
With central banks’ recent actions in mind, you have to question what’s next for copper prices. I suspect something similar to what happened in 2009 could occur in the copper market again.
Copper Prices Outlook for 2016
I will be bold here and say this: if you are looking for a trade that makes you big bucks, copper could be one. Obviously, time will tell more, but as it stands, all the stars are lining up perfectly for major upside.
I still say copper miners are going to provide leveraged returns. Best of all, they are still selling at literally pennies on the dollar.