Copper remains on a hot streak and backs up our theory that global markets remain on a strong growth plan. It also highlights the issue with copper supply. Read just about any copper article on the internet and it'll summarize the difficulty that large copper mines are having with keeping production up. In many cases the production levels are down 10% from last year.
So in essence demand growth remains strong and supply growth remains constrained. The media focuses on peak oil, but maybe peak copper should be a bigger focus. After all oil is still being found at a rapid pace in deepwater locations and shale formations. Oil production in the US is increasing for the first time in decades and shale gas is making the possibility of moving truck fleets to LNG a real option. Hence reducing the demand for gasoline from oil.
Naturally Freeport McMoRan Copper (FCX) remains the favorite play in the sector. The stock peaked around $62 earlier this year and looks to regain that level soon. Our forecast is that FCX eventually sees a significant break of this level also seen back in early 2008. With a double top breakout to all time highs, $60 may be a distant memory.
Lihua International (LIWA) remains a favorite play in the copper sectors. The Chinese company produces and recycles copper products. The stock has naturally been crushed with all of the concerns over China fraud. The stock remains a speculative play, but it also offers huge rewards if and when the fears subside in the sector as the legit companies remain.
For those fearing a double dip, this chart speaks volumes.
Disclosure: Long FCX and LIWA in client and personal accounts. Please review the disclaimer page. This blog post is provided for informational purposes and should not be construed as investment advice.