More Than Just Pennies

When was the last time you thought about the exciting world of cable and wire manufacturing? The industry has long been in full maturity domestically, but, over in China, demand for this basic necessity is booming. This only leads to one natural conclusion:

The long-term fundamentals are in place for the little commodity we know as copper. You will want some exposure to this commodity over the next decade. You might want your kids to learn how to speak Chinese, as well.

Cable and wire manufacturers in China are running full tilt. That country just can’t produce enough copper to keep up with domestic demand. China is the world’s largest consumer of copper, and it just can’t get enough of the commodity to keep up with rising demand for electricity. A scarce copper supply is contributing to the country’s ongoing electricity blackouts. Even the President of Nippon Mining & Metals Co., Mr. Kazuo Oki, has said that the country will continue to have electricity problems because it can’t get enough copper to distribute power to homes and factories.

It is estimated that China will consume some 3.6 million tons of copper this year, up about 12% from 2004. According to research compiled by Bloomberg, the London Metal Exchange, the Comex division of the New York Mercantile Exchange, and the Shanghai Futures Exchange, copper stockpiles at warehouses around the world are at the lowest levels since 1990. Current stockpiles account for only some two days of global consumption. It’s no wonder the price of copper is strong.

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I don’t think you want to buy copper futures, however, at this particular time, because all this fundamental news is already priced into the metal. What you may want to consider is some equity ownership in global copper producers. To name just a few, there are BHP Billiton Ltd., Freeport McMoran Copper and Gold Inc., and First Quantum Minerals Ltd. for consideration. It would be useful to talk to your broker about their top picks in this market sector.

Some of the mid-sized companies may actually become takeover targets by China’s large, state-owned resource conglomerates. In any case, the raw material copper will enjoy a bright future for years to come.