Forsaking Oil Volatility for Copper

Includes: FCX, SCCO
by: HiddenLevers

Even though I expected such, I’m still annoyed about the spike in the price of oil as a result of the tumult in Libya. Libyan oil doesn’t even get shipped to the US, so why and how are speculators pushing up our domestic gas prices? We at HiddenLevers have made our opinion clear that the numbers don’t lie; Libya is not big enough of a player in global oil production to cause any critical supply problems, so the notion that oil will leap past record prices because of this catastrophe in North Africa is preposterous. Newton’s Law of Gravity is not restricted to physics: these high prices will have to come down eventually. Greedy Bulls: you’ve been warned. Don’t become pigs.

Because oil is non-renewable, we can expect to see even more of these see-saw price periods in the future. The volatility of the oil market is enough to drive even the sanest of people crazy, especially in these current times of civil unrest in the Middle East and North Africa. That’s why I don’t blame any investors who’d rather store their money elsewhere. Copper seems like a much more stable investment. Take a look at the relationship between Oil and Copper over the years — it’s quite telling:

Chart created using Hidden Levers app

Now you have visual proof of Oil’s volatility in comparison to that of Copper. Both are trending upwards, but those noticeable dips in Oil Prices in 2010 are pretty absent for Copper in that same period. Copper’s strength lies in two strong, developing economies in Chile and China. The respective production and consumption levels by these countries have been a consistent engine for growth in the Copper industry.

As always, within an industry, it’s imperative to look for details that separate stronger from weaker competitors. Using our tools, I created Macro Profiles of two copper companies to find a winning Copper play.

The verdict: Southern Copper Corp. (NYSE:SCCO) is hot-to-trot…

While Freeport McMoRan (NYSE:FCX) …notsomuch.

(This chart is an update reflecting a correction of an erroneous number that appeared in the earlier version of this article.- Ed.)

Copper-related investments provide stability along with profitability. To me, that’s better than a highly speculative and volatile oil market, and since Lent is nigh, I’m going to deny my appetite for risk-taking. I will however, have a bite of that King Cake! Laissez les bon temps roulez!