Monday, December 6, 2010

Merrill Lynch Predicts 35% Rise for Copper in 2011

Anybody following this blog should know that we've been bullish on Copper basically from the start nearly 2 years ago. Copper is an industrial medal in high demand in emerging markets. The basic thesis for rising prices is that supply continues to be constrained due to decreasing productivity from aging mines and a general lack of new mines topped by surging demand in China. The one wild card has been the demand level from the US. Decreased demand from the US over the last couple of years has helped keep demand growth in check. What happens in 2011 if US demand finally roars back with general growth and a return to homebuilding.

Evidently Bank of America Merrill Lynch thinks 2011 will be a blowout year for copper. They are predicting a rise to $11,240 a ton up from the record of $8,966 reached on Nov 11. Thats a whopping 37% gain. Our only concern is that a big surge in copper prices might reduce demand. We'd prefer a much more manageable 10-15% rise. Otherwise copper could be headed for the speculative bubble high like oil back in 2008 when it hit $140.

Nobody wins the scenario of surging prices other then traders and thats not good for markets. Naturally we've been big investors in Freeport McMoRan Copper & Gold (FCX) plus a China refined copper producer in Lihua International (LIWA). FCX is a hedge fund favorite so it has limited upside compared to LIWA that is just now being embraced by the markets.


Via Bloomberg:


  • Global inventories of copper monitored by the London Metal Exchange, Shanghai Futures Exchange and the Comex have slumped 20 percent since the end of June to the lowest since November 2009. Manufacturing in the U.S., Europe, China and India grew in November, a sign that the global recovery is gaining traction.
  • “I like copper and the industrial area,” said James Paulsen, the chief investment strategist at Wells Capital Management, which manages about $350 billion. “Manufacturing is clearly taking a leadership role in this recovery in the U.S., and growth in the emerging world tends to be more industrial- commodity based.”
  • “Increased demand and low inventories will likely push copper to a new record of $11,250 a ton in 2011,” Bank of America Merrill Lynch said in a report dated Dec. 3. Prices reached a record $8,966 on Nov. 11.


Disclosure: Long FCX, LIWA

No comments: