Copper Prices Could Shoot Through the Roof
This may be a bold statement, but pay attention to copper prices if you are looking for massive profits. The red metal is down big-time from its highs, but fundamentals are turning, suggesting copper prices could skyrocket.
I completely understand that my take on copper is rather unorthodox. To my knowledge, there aren’t many who are bullish on copper prices. But I am bullish on copper due to basic economic reasons: as copper prices are down, long-term supply is becoming uncertain.
You must remember that when prices are down, companies have very little incentive to produce more. For some, it’s just not feasible to produce at all.
As it stands, we see copper mining companies pulling back their spending on future growth—their exploration spending.
Let me explain…
Look at Southern Copper Corp (NYSE:SCCO), for example, and, more specifically, its exploration spending. Before going into details, know that Southern Copper is a heavyweight in the copper market; it produces a significant amount of the red metal.
In 2015, the company spent $48.8 million on exploration. In 2014, this spending was $74.7 million. (Source: “Results Fourth Quarter And Year 2015,” Southern Copper Corp, February 10, 2016.) This represents a decline in exploration spending of nearly 35% year-over-year.
Dear reader, if companies are pulling back their spending on this area, you really have to question what happens next. Mind you, Southern Copper isn’t the only copper heavyweight doing this.
Rio Tinto plc (ADR) (NYSE:RIO)—a major industrial metal-producing company with significant copper production—is cutting back on exploration as well. In 2015, it spent $576 million. In 2014, Rio Tinto’s exploration spending was $747 million and in 2013, it was $948 million. (Source: “2015 Annual Report,” Rio Tinto plc, last accessed March 10, 2016.) Simple math will tell you that Rio Tinto’s exploration spending plunged close to 40% between 2013 and 2015.
I am very well aware that in 2016, the copper market is expected to have a surplus—more supply than demand. But, the pace at which copper mining companies are pulling back on their exploration spending shouldn’t be overlooked. The surplus could quickly turn into a deficit.
Copper Prices Outlook for 2016
Despite all the negative, copper prices are up more than three percent year-to-date. It’s not a big amount, but it is certainly impressive.
I will not be shocked if 2016 is the year when copper prices find a bottom and if, by the year’s end, we see the red metal moving higher.
I am really looking forward to copper prices in 2017. We could see big gains very quickly.
One of the catalysts I want my readers to keep in mind is what central banks around the world do regarding their monetary policies. If more of the same continues or negative interest rates come into play, copper prices among other metals will shine.
In the meantime, it would be wise for investors to look at copper mining companies with solid properties, low production costs, and cash on hand. They could be the best way to play the upcoming rise in copper prices.