After a brief respite in copper demand in China due to its Lunar New Year holiday, China's copper demand should again pick up. Recent data from China has fueled optimism that the country's appetite for metals demand could pick up following the holiday season. Keep in mind that any pickup in Chinese copper demand is significant as China accounts for about 40% of global refined copper demand.
Looking further into the evidence that Chinese demand for copper should pick up brings out a few important data points. First, we take a look into the recent data. Copper imports by China advanced by 2.9% in January from a month earlier as trading firms bought the metal before Lunar New Year in preparation for a recovery in demand in March. Inbound shipments of refined metal, alloy and products were 351,000 metric tons last month, the General Administration of Customs said. That compared with 341,211 tons in December and 413,964 tons a year earlier.
Last year, China announced a series of infrastructure projects that would require massive amounts of copper, which is widely used in construction and manufacturing. However, as of late-November, the push to spend on new railroads, power grids and other projects didn't translate into shovels in the ground. Notably, with the transition of government power complete late last year, market participants believe Chinese officials will flip the switch on copper-intensive construction, and are forecasting higher prices for the metal.
Looking forward, China's planned infrastructure projects should begin to strengthen copper demand in the third quarter of 2013, said Li Yusheng, senior copper market analyst at Chinese state-owned metals consultancy Beijing Antaike. And while Mr. Yusheng doesn't see any fresh stimulus announcements in 2012, he said new measures should be launched in 2013, mostly likely in the form of spending on railways and power grids.
Morgan Stanley forecasts that copper prices will advance 7.6% in 2013 from last year as demand in China, the U.S. and even Europe is forecast to rise amid a supply deficit for the metal. Morgan Stanley raised its Chinese copper demand forecast to 8.4% year-on-year from 6.7% and expected further 5% growth in 2014. "China's industrial production cycle turned up in the fourth quarter of 2012, with infrastructure-related demand and non-ferrous metal output contributing strongly to increased output and higher orders," the analysts said. "We believe this improved position will strengthen further in 2013, particularly as widespread industry destocking of finished products appears to be ending." Global demand will exceed supply by 17,000 tons in 2013, the fourth straight annual deficit, it said.
Orders from China, India, Indonesia and Brazil and limited new supply will sustain demand for copper, driving prices up by as much as 5% in 2013, said OZ Minerals (OTC:OZMLY), Australia's third-biggest copper producer. Copper may average $3.70 a pound to $3.80 a pound in 2013, driven by "urbanization and urban renewal programs in major developing economies and shortfalls in mine production with slower development of new projects," Terry Burgess, Chief Executive Officer of the company said.
Here are three stocks that should benefit from China's ever increasing appetite for copper: Swingplane Ventures (OTCPK:SWVI) is a copper miner with one major property, the Algarrobo property based in Chile. Zacks recently said that the Algarrobo project is advancing more quickly than expected with near-term production having been pursued more aggressively than previously indicated. Further, the actions taken by management to date indicate a strong commitment to explore for high-grade copper veins on the Algarrobo property, to produce as soon as possible from the veins so far unearthed by drifting, to fast-track the rate of vein discovery through advanced geophysical surveys and to increase the current production level by exploiting newly discovered veins.
In a previous report, Zacks said that the prospects for discovery of additional high-grade copper veins on the tenures controlled by the option held by Swingplane Ventures are promising. Recent production from Roble 2A in 2009 and 2010 and the driving of three drifts on the newly discovered Veta Gruesa vein on Roble 5B strongly suggest the continuation of high-grade copper veining in several of the Roble tenures. In addition, the discovery of other veins (Manto Ossa and Descubridora), along with several subordinate veins, advocate for the existence of other significant veins parallel to the three Main Veins and networks of secondary veins in the Roble tenures. The analyst noted that the stock could be worth up to $0.92 per share, which is upside of over 30% from today's prices.
The company recently announced results from the sale of initial test shipments of Low Grade Mineralized Material from the Algarrobo Property. Swingplane said that multiple shipments of low grade, copper mineralized vein material have been delivered to the ENAMI facility over the two months. The ENAMI facility at Copiapo is a government owned smelter and processing facility, primarily for copper ore. The material shipped to date is low grade, copper mineral for leaching, having documented grades, as determined and reported by ENAMI, ranging between 1.88% and 8.8%. These initial, test shipments comprise a reported total of approximately 500 tons of low grade, copper mineralized vein material produced, and stockpiled, from three of the drifts developed over the past year. Swingplane is also currently part of a media exposure program that has brought significant attention to the stock and its shareholders.
Reminder, all investments involve risk, micro-cap stocks are among the most risky. Many micro-cap companies tend to be new and have no proven track record. Another risk that pertains to micro-cap stocks involves the low volumes of trades. Because micro-cap stocks trade in low volumes, any size of trade can have a large percentage impact on the price of the stock.
The stock has been on a tear and it just said new highs on Friday of just under $0.70 a share. The $0.60 low set the past two days should serve as support for the stock while the $0.70 level should serve as resistance.
Sterlite Industries (SLT) is the leading copper producer in India. The copper business comprises smelting and processing of copper and production of its byproducts. Its operations include a smelter, refinery, phosphoric acid plant, sulphuric acid plant and copper rod plant at Tuticorin in the state of Tamil Nadu in southern India; and a refinery and two copper rod plants at Silvassa in the Union territory of Dadra and Nagar Haveli in western India. In addition, the company owns the Mt. Lyell copper mine at Tasmania in Australia, which produces a clean concentrate that is valuable in the smelting process, to meet around 8% of copper concentrate requirements at Sterlite.
At the end of January, Sterlite reported over 30% growth in consolidated net profit at Rs1,191.41 crore for the quarter ended December 31, 2012, largely on account of improved sales realizations and lower tax outgo. The company had reported a net profit of Rs913.52 crore in the same quarter of the previous fiscal. Net sales of the company was up 4.33% at Rs10,692.40 crore during the quarter vis-a-vis Rs10,248.77 crore in the October-December quarter of the previous fiscal. Sterlite said its core profits reflected "improved operational efficiencies, marginally higher metal prices and premiums and improved sales realization due to rupee depreciation, which were partially offset by lower by-product realizations".
SLT has struggled over the past month as it has tumbled from $8.75 a share to just under $7.50 a share. The $7.75 level should serve as first resistance on the upside while the lows set over the past 2 days should serve as support.
Teck (NYSE:TCK) is a diversified resource company committed to responsible mining and mineral development with business units focused on copper, steelmaking coal, zinc and energy, and is also a significant producer of specialty metals such as germanium and indium. Teck owns, or has an interest in, 13 mines in Canada, the USA, Chile and Peru, as well as one metallurgical complex. The company is actively exploring for copper, zinc and gold in the Americas, Asia Pacific, Europe and Africa.
Teck posted lower fourth quarter earnings, hurt by sharply lower coal prices, but its adjusted profit beat analyst expectations. The diversified miner said it earned C$145 million ($146 million), or C$0.25 a share, down from C$637 million, or C$1.08, a year earlier. On an adjusted basis, its profit slipped to C$0.61 a share from C$1.04 a year earlier. However, the latest results exceeded analyst expectations, which were for earnings of C$0.48 a share according to a Thomson Reuters poll. On a side note related to copper, revenue from Teck's copper business increased on higher sales volumes, but coal business revenue tumbled despite higher volumes due to the drop in coal prices.
TCK's stock has struggled over the past two weeks following the big drop from $37 a share. TCK has traded in a range between $33 and $34 over the past week and until the stock breaks out of that tight range, there will be little excitement in the stock. However, a breakout should provide a significant move either to the bottom or to the upside.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.