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.
- 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