Playing the Copper Rush (FCX, PCU, PD)

Includes: FCX, PD, SCCO
by: Yaser Anwar

Copper prices are up more than 180% since mid-2003, as new copper production is beginning to come on line. With such a run-up, is it realistic to believe that current price levels can be maintained or even go higher?

  • In the US, the nation's first new copper mine in a decade is about to begin production in the desert valley near the Colorado border.
  • Two new mines and expansion of several existing mines are planned in Arizona, which produces 75% of the USA's copper.
  • An old mine in Nevada is being reopened, and one in Utah is being enlarged. Montana, once ruled by copper king mining firms, may also get a couple of new mines.
  • New mines and existing mines that are once again profitable are being reopened and new production is coming to market. This will continue until the supply demand equalizes at some point in the future.
  • Record high prices are caused by the booming economies of China and India, which need tremendous amounts of copper to support their burgeoning infrastructures.
  • Currently, the U.S. consumes 50 pounds of copper per capita each year, while China is using only one pound.
  • As this number is obviously going to grow, the question one needs to ask is how will this all play out and what ultimately will the world be paying on average for a pound of copper moving forward.
  • If consumption from China and India continues as expected or goes higher, the pressure to keep up with this demand should keep copper prices strong for a long time to come, despite the new production that is coming to market.
  • Most of this new production is just beginning to replenish some older mines that have become exhausted or depleted, let alone catching up to the new demand that has been added from Asia.
  • The uses of copper are myriad. Tubing, plumbing for houses, offices, wiring in cars and motors, just to name a few. Copper is one of the basic building blocks of our modern infrastructure. You can't even light a light bulb without copper.
  • Bottom Line:

    I believe copper will remain very strong over the next two-three years and will move possibly as high as $4.20 a pound during this time period. Stocks to benefit from this trend: Phelps Dodge (PD), Freeport-McMoRan Copper & Gold (NYSE:FCX) and Southern Peru Copper (PCU).

    PCU, PD, FCX 1-yr Performance

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