Copper Breakout Defies the Gloom Merchants

In a note to clients dated October 30^th 2007, which looked at the state of the Peru mining industry and the metals mined there, we wrote the following:

..it still surprises some investors to learn that the copper industry couldn’t give two hoots about how many houses are built in the USA. By way of evidence, over 85% of Peruvian copper exports presently go to Asia, comprised of: China (44.7%), Japan (29.2%) and S. Korea (11.7%). This sea change in demand has been understood inside the industry for literally years but is repeatedly denied by those that still believe the USA is the centre of everything. Therefore the next time metals spot prices drop on headlines screaming of demand slacking in the US we invite you to chuckle along with us. If they can keep the joke going it will only get funnier in the future…

The latest dip in spot copper coincided almost to the day with that publication date, as it dipped below its 50 day moving average on reports of…yes you guessed it…a weak US housing market apparently affecting demand for the red metal.

With copper breaking out from its 50DMA today (at time of writing $3.23/lb on the LME) we are finding it difficult to wipe the grin from our faces, and wonder how many investors bought into the “US housing controls copper” joke this time around. We are laughing again…all the way to the bank.

Due to its high institutional holding, we recommend Southern Copper (PCU) as an excellent vehicle to profit from this move in base metals, though large producers such as Freeport McMoRan (FCX) or Antofagasta (ANFGF.PK) (ANTO.L on the London exchange) could be just as effective. We are also on record as liking a whole basket of junior base metals miners in the Latin America region.

Disclosure: Author's firm recommends a long position in PCU to clients and is neutral on FCX and ANTO.L.  

Comments

[BxCap:]

Business writers have deadlines. When they have to push out an article on why copper futures are down, they reach for their 2004 Almanac and see that 400 lbs of copper is used in the average US Home. That's all they need. Whether hybrid batteries, emerging market electric grids, electronics, and the like, need copper is irrelevant. They've got a deadline, and they have to keep it simple. You can't site statistics or graphs, until the numbers are generated and tallied, therefore most people look backwards into history to explain history. Few, like Heebner or Lynch, walk around with their eyes and minds wide open, processing information in real time.

2008 Jan 08 10:50 AM

[bob cat:]

wow... talking about 3 strikes and you are out!!!! perhaps jurno should stick to reporting and not stock picking

2008 Sep 19 05:11 PM