Copper Investing: Bullish Fundamentals Are In Place…

| September 16, 2011 | 0 Comments

Shiny metals are all the rage these days…

Take gold for example… it’s up a staggering 28% since January 1st. Investors just can’t seem to get enough of it.  A rush out of fiat currencies into the relative safety of this hard asset has given early investors remarkable returns.

And don’t forget silver… it’s up a smokin’ 33% since the first of the year.

The ‘poor man’s gold’ is popular with smaller investors.  They believe industrial demand along with surging demand from emerging market investors will keep the metal flying higher.

And then there’s copper…

Used in electrical wiring, piping, and all sorts of other industrial applications, copper is a highly desired global commodity.

The essential metal of the construction industry hasn’t performed well at all this year.  Copper’s down 15% from its highs earlier in the year.

But let me add a bit of context…

The highs in February 2011 at $4.60 are all-time highs for copper.  The emerging market building boom has countries like China gobbling up huge quantities of the red metal.  That high-demand, along with constrained supply, sent prices soaring.

But since February, the copper market has been a bit dull.  Fears of a China building slowdown along with the threat of a slowing global economy have kept copper under wraps.

But that may be about to change…

Investment banks JP Morgan and Blackrock have both filed applications with the Securities and Exchange Commission (SEC) to launch physically backed copper ETFs.

Many commodity ETFs merely invest in commodity futures contracts to mimic the price movement of the commodity.

But these proposed ETFs go one step further…

They would buy the actual commodity and hold it in vaults.  Investors who then bought shares of the ETF would own a percentage of these physical holdings.

Sounds like a good idea… right?

If they’re approved, these ETFs will start gobbling up physical copper to satisfy the needs of investors.

According to an article, when the two banks filed applications with the SEC, they said global copper supplies are abundant. And these (theoretically) large supplies would be enough to support the physical copper demand these ETFs would create.

However, copper industry analysts would probably disagree….

Most analysts already see the copper market as exceptionally tight.  In fact, the International Copper Study Group expects a supply deficit of 380,000 tons this year.

Analysts at Goldman Sachs and Barclays are also anticipating copper supply shortfalls.  And they see copper prices rising to nearly $5.00 a pound in the fourth quarter of this year as a result.  Accelerating Chinese demand and shrinking global stockpiles have them convinced prices are about to move higher.

What’s crazy is, those price targets aren’t accounting for the additional supplies that would be taken off the market due to these proposed ETFs.

Here’s the bottom line…

Copper supply/demand fundamentals already support higher prices.  If these two physically backed copped ETFs hit the market, the global supply situation will grow even tighter.

And that means copper prices could be ready to make another big run higher…


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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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