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Metals and Mining: Blast Off!

Metals and miners are not created equal. While the long term supply/demand for some metals might remain, lower energy prices will be more than offset by increasing labor costs as labor looks to get a piece of the action (as the recent strikes show). Moreover, the housing slump in the U.S. is going to kill demand for copper (whose demand is principally driven by residential construction). Moreover, China is actively working to cool the red hot construction market not only with monetary policy but by firing regional govenors who fail to slow projects.

The 1-2 punch of increasing labor costs and slumping demand is going to drive companies like PD and PCU with 50% exposure to the U.S. market well below current levels.

Commodities bulls are buying all metals and miners alike - just based on news of OPEC cutting oil supply - but we are now entering a phase of differentiation between margins and markets, miners and metals. There are some great long/short trades to be made by differentiating the propects of individual companies and markets against the backdrop of hedge funds who are all buying and selling the whole commodities stack en masse.