Here’s Why Copper Prices Could Skyrocket
Since their peak in 2011, copper prices are down well over 50%. Now, there’s light at the end of the tunnel; copper prices could skyrocket.
There are three factors at play here: China buying copper, lower prices leading to lower production, and central banks.
China’s Unprecedented Copper Demand
You see, despite all the negativity about the Chinese economy slowing down, we see China as a buyer of copper. You would expect the complete opposite. Mind you, the bull run in copper prices between 2002 and 2011 was based on the idea that emerging markets like China will need a lot of it.
Consider this: in January, 315,000 tonnes of refined copper were imported into China—up 16% from a year ago. In December, refined copper imports were the highest on record at approximately 423,000 tonnes. (Source: Reuters, February 25, 2016.)
It’s important we pay attention to the copper concentrate demand in China, too. At the very core, copper concentrate is simply the raw material used to make copper metal. In January, 1.17 million tonnes of copper concentrate were imported. It was the sixth consecutive month that more than a million tonnes were imported!
Production Declining as Copper Prices Tumble
As stated earlier, copper prices are down 50%; this could take a big toll on production.
It’s basic economics: as prices decline, producers have less incentive to produce—or they simply can’t produce.
We see something like this happening already. Please look at the chart below of copper mine production in the U.S. It shouldn’t be forgotten that the U.S. is the fourth-biggest copper producer in the world.
Copper Mine Production in the U.S.
|Year||Mine Production (Tonnes)||% Change Year-Over-Year|
Data source: U.S. Geological Survey, last accessed February 25, 2016.
Notice something? Until 2014, copper production was increasing. However, in 2015, it declined more than eight percent. Don’t take this fact lightly.
Yes, we have all heard the oversupply story. That may be the case for now. But if conditions persist, it won’t be the case for long.
Central Banks and Copper Prices
And why pay attention to the central banks when looking at copper prices?
You see, central banks are in dire need of growth. So far, five central banks are operating on negative interest rates and a few are contemplating the idea.
What does this mean? Well, with low or negative rates, some commodities tend to do great. Copper is one of them. Investors buy copper in anticipation of growth ahead. Don’t be shocked if we see this happen again.
One trigger I am watching: the Federal Reserve pulling back on its rhetoric of higher interest rates ahead.
Copper Prices Outlook for 2016
I am bullish on copper prices. I am thinking long-term. The fundamentals are slowly turning in favor of the bulls. I am also not too worried about the short-term fluctuations. In fact, they make copper an even better potential opportunity. Certainly, time will tell more.
Keeping all of this in mind, I am paying a significant amount of attention to copper mining companies. Buying physical copper isn’t feasible.
If you look closely, you will find some of the best copper companies, with solid properties and massive reserves, selling for a massive discount. When copper prices move higher, these companies will pay big time.