New York is quickly becoming the world's fastest growing copper trading center, which could have serious implications for the copper miners. Reuters reported that the volume of copper traded on the Big Apple's Comex in May was 63% higher than the volume traded there in May 2011.
That means that around 13% of the world's copper is now being traded in New York. New York is still far behind its biggest rival London, where around 65% of the world's copper futures are traded on the London Metals Exchange (LME).
The LME has been losing shares in recent years because of problems including trouble paying customers. Another reason why COMEX's share of the copper trade is growing is that most of its deals are electronic. Much of the trade in London is still done through the old open outcry system.
The shift from London to New York could hurt the share values of major copper producers such as Rio Tinto (NYSE:RIO), Freeport-McMoRan (NYSE:FCX) and Southern Copper (NYSE:SCCO) by making the market for the metal more volatile. Reuters reported that investors are more likely to hedge and speculate on the COMEX.
That means that copper prices could rise and fall faster, which will make it harder for copper miners to budget and control expenses. That would also make it harder for those companies to maintain a regular profit and steady cash flow. It could also increase the volume of trading, which could increase profits for some copper miners.
The COMEX isn't the only copper exchange growing fast, Reuters noted that volume on the Shanghai Futures Exchange has increased by 156% in the last year. The LME has also faced serious competition from the Intercontinental Exchange (NYSE:ICE). LME recently entered into a deal with the Hong Kong Clearing and Security Exchanges in an attempt to expand its reach in China and Asia.
Mining companies are about to face a metals market that is going to be far more fragmented and complex as well as volatile. This will lead to more hedging and hoarding, which will surely drive down metals prices. Another consequence of this will be that scrap and other alternative sources of metals will play a bigger role in the market.
End users of copper will also have more say because they'll have more places to buy copper. That will probably mean significantly lower earnings per share for copper producers. It could also mean widely fluctuating stock values for those companies as the copper price fluctuates wildly.
Major Copper Project in Minnesota could get Approval
Another copper development to watch closely is Poly Met Mining's (NYSEMKT:PLM) approval for its NorthMet copper and nickel project in Minnesota's Mesabi Iron Range. The Duluth News Tribune reported that the Congressman who represents the area, Chip Cravaack (R-Minnesota), thinks that an environmental impact statement for the project is nearly complete.
Cravaak told the newspaper that he doesn't think there are any issues that could delay the statement. If what Mr. Cravaak says is true permits for the project could be issued in 2013 or 2014. Work would begin shortly after that and Poly Met could start mining at Hoyt Lakes near Babbitt, Minnesota, within two years.
If Mr. Cravaak's statements are true Poly Met's stock values should increase because it owns 100% of the mine and the Erie Plant, a large crushing and milling facility located nearby. In addition to copper and nickel, Poly Met hopes to mine platinum, palladium, cobalt and gold in an open pit on the project. The project will cost around $600 million. Poly Met did not reveal how much of the minerals it hopes to find there.
Approval of the permits may not help Poly Met's stock much because Cravaack said he thinks unidentified opponents of the mine plan to file a lawsuit to block its construction. Environmental groups, local Native Americans and the U.S. Environmental Protection Agency (EPA) have been critical of the project. They fear that pollution from the mine could contaminate local water supplies and damage nearby wilderness areas.
Any sort of successful court action to stop the mine could sink Poly Met's stock value because the Hoyt Lakes project appears to be its only real asset. If Poly Met is successful at the facility it could become a takeover target for larger miners such as Newmont Mining (NYSE:NEM) and Freeport-McMoRan. That could further boost its stock value and make this little company well worth a look.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.