Industrial Metals: Is Copper Ready For A Comeback?
No doubt about it, industrial metals have been poor performers in the first few months of 2013. Aluminum, zinc, copper- they’re all taking it on the chin.
In fact, one look at a copper chart and you may come to the conclusion that the global economy is in big trouble…
As you can see, the spot price for the red metal came within a whisker of 52-week lows ($3.30 a pound) in early April.
Why’s that a big deal?
It’s simple really. Copper is seen as a leading indicator for global economic strength/weakness by most professional investors. Of course, that’s simply due to the red metal’s widespread use in the global construction industry. Copper piping and wiring is an essential part of nearly every new construction project- big and small.
So when prices start falling, it’s usually seen as a sign of weak demand, which in turn can signify problems in the global economy.
But thankfully that’s not the case this time around…
China, which is the largest consumer of global copper supplies, is expected to see GDP growth solidify around 8% this year. While that’s down from the feverish growth of 10-13% seen in 2005 to 2007, it’s still very healthy.
What’s more, the US housing market is making a strong comeback, a trend that should last through this year and well into next.
As you can see, weak global economic growth clearly isn’t the problem here.
So… why exactly is the price of copper in the dumps?
It all comes down to supply. Global copper producers have made great strides to increase production of the red metal over the past few years. As a matter of fact, copper sitting in London Metal Exchange warehouses is at 10-year highs right now.
Burgeoning supply is the sole culprit for the copper’s price downturn.
However, high inventory levels are likely priced into the market at this point…
Should Chinese economic data points continue showing signs of stability, copper will likely see a bit of bargain hunting from investors. As a result, don’t be surprised to see copper rally back to the $3.50 a pound level in coming weeks.
You can capitalize on a possible rally through the iPath DJ-UBS Copper ETF (JJC).
JJC allows investors to invest in copper without the need for complicated and risky futures contracts.
Until Next Time,
Justin Bennett
Category: Copper, Industrial Metals
