Peak Copper?

[HenryTo]

Very bullish sentiment now on copper prices - culminating now in an argument for "peak copper."
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The Globe and Mail
Copper the new must-have metal
By ERIC REGULY

Tuesday, December 27, 2005 Page B2

We asked Barrick chairman Peter Munk last spring to name the metal he would buy with his own money. Surprisingly, the answer wasn't gold. "Buy copper," he said. He was right (although gold prices went up, too). Copper prices rose almost 50 per cent this year and have doubled over two years.

Tens of millions of rural Chinese are moving into cities, he said. Their new homes require copper plumbing and wiring, and Chinese mines and smelters can't meet the internal demand. China alone eats up more than a fifth of global copper supplies.

With the price going so high so fast, it's tempting to take some money off the table. But hold on. A new investment theory making the rounds says oil and copper might, distressingly, have a lot in common. You've heard of "peak oil." How about "peak copper?"

The peak oil camp argues that the planet's oil production has reached, or will soon reach, peak production, followed by slow but irreversible decline. The true believers point to oil fields that are becoming less productive, sometimes alarmingly so, and the distinct lack of big new discoveries. In fact, most of the world's oil comes from fields found in the 1970s or before. The peak oil advocates naturally expect prices to go up; to them, $100 (U.S.) a barrel is possible in the not-too-distant future. They invest accordingly.

You wouldn't think copper has much in common with oil, economically speaking.

When I renovated my house last year, the contractor installed plastic pipes instead of copper to save a few bucks. Put plastic in millions of homes, and copper prices, you would think, will come down. "Substitution" does not generally apply to hydrocarbons. I can't save money on my heating and transportation bills by replacing natural gas or gasoline with another fuel of similar price; that other fuel doesn't exist.

But there are no reasonably priced, and equally effective, substitutes for copper when it comes to electrical conductivity. Electrical uses, not plumbing, are the metal's main market. If you want wiring, you get copper unless you're a millionaire and can afford silver. Copper bulls expect the auto makers to drive up copper demand. Hybrid cars, which combine gasoline engines with electric motors, use almost twice as much copper than regular cars. The number of hybrids on the road is doubling every year. Credit Suisse First Boston says copper demand has been rising 4.3 per cent a year on average since 1997 and could go to 5 per cent.

That's the demand side. The supply side isn't keeping up, which brings us to the next parallel to the oil market.

Oil's swing producer is OPEC. In the copper world, OPEC's equivalent is Chile. In the past 15 years, Chile has provided two-thirds of the world's copper supply growth. One of the biggest Chilean mines, Collahuasi, is 44 per cent owned by Toronto's Falconbridge.

The country has been a godsend for China and other voracious copper munchers.

Now the bad news. "Going forward, Chile has fewer options for growth and its seems a lot of the low-hanging fruit has been picked," CSFB said in a recent report.

It added that "based on existing mines, Chilean copper production has plateaued and could decline, from 5.5 million tonnes in 2005 to 4.4 million by 2015, as mines age and copper grades decline." In fact, Chilean copper product fell almost 3 per cent in the first 10 months of 2005.

Sound familiar? Peakists must be delighted to have another allegedly peak commodity to fret about.

But won't the soaring price trigger a copper exploration and production bonanza? There's more bad news. Like oil companies, copper companies are investing more and more to yield less and less. Chile's Codelco, the world's biggest copper producer, invested $4-billion to raise production by a mere 165,000 tonnes a year. That's equivalent to almost $11 a pound of extra capacity. The price of copper was $2.09 a pound just before Christmas.

In spite of the shortages, the overall investment in extra production is, at best, modest. Blame greedy investors and their short-term thinking. They would rather see the high prices fund share buybacks and special dividends instead of risky plays in dubious parts of the world, such as the Democratic Republic of the Congo, one of the last regions thought to have big, untouched copper deposits.

Combine evidently waning Chilean production, a reluctance to throw billions at new projects and relentless Chinese demand and you have a recipe for supply deficits and even higher prices. No surprise metals analysts are raising copper price forecasts by double-digit rates for 2006 and 2007.

This is good news for investors. Falconbridge and Inco (the two are merging) are primarily nickel makers but have a lot of copper production. Toronto's Inmet Mining is another copper-heavy player. Big copper names outside Canada include Phelps Dodge, Southern Copper and KGHM. The new year may bring them riches they could only dream about in the lean 1990s.

ereguly@globeandmail.com

[rffrydr]

The "red-gold" story turns another chapter:

http://ftalphaville.ft.com/blog/2012/04/26/975511/china-is-being-buried-alive-in-copper/

Despite the structural story of "de-grading" and labor problems/govt grabs I think $4 copper is now....historical.
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[rffrydr]

58% of stocks held by china while the world goes lean.....time to throw on a stangle?
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

How the mighty have fallen: FCX trading under 4X earnings and finding a floor as a takeover candidate.

http://www.bloomberg.com/news/2012-04-17/freeport-deal-talk-intensifies-on-cheap-copper-real-m-a.html
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[rffrydr]

2009 has really made a believer of all of 'em. This will be interesting, fading copper "structure" against its "cycle."

http://www.brecorder.com/agriculture-a-allied/183/1166477/
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Caught that too. At some point, the correlation becomes meaningless as the primary concern is productivity growth--and higher energy prices are an impediment.

[rffrydr]

....but the "good news" is, " that the price of a barrel of Brent crude oil remains near the year’s high."

Cracked parity on aussie today.
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[HenryTo]

Yardeni on slowing copper demand and its price correlation to that of the S&P 500:

http://blog.yardeni.com/2011/09/copper-oil-s-500.html

[rffrydr]

We won't know better 'til the assie breaks the buck....but looks like credit is getting tighter in the real china:

http://stockcharts.com/h-sc/ui?s=FCX&p=D&b=5&g=0&id=p55070183634
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[rffrydr]

Copper not passing the "dust test":

http://ftalphaville.ft.com/blog/2011/05/31/580436/lets-count-the-copper-with-dust-on-it/

I've been listening the this series and the farmland one is just as compelling. One farmer's land bought at $600/acre tried for years to grow wheat on was just bad land sold for $1300 to an investor.

Can't get too carried away with all of this....like crude, now a monetary phenomenon, like empty condos in Vegas. Watch the eurodollar curve for direction.
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[rffrydr]

While Chilean president assures on the long-term "trajectory" Alphaville fills out the numbers in this shadow banking system with chinese characteristics:

http://ftalphaville.ft.com/blog/2011/05/26/578321/the-butcher-the-baker-the-candlestick-maker-all-love-copper/
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[rffrydr]

This from the 1600 page Glencore prospectus:

[rffrydr]

Shadow banking system squared: of course china's banking system is the shadow banking system but the cult of hard assets, made religion by the collapse of structured finance, is casting a longer shadow:

http://ftalphaville.ft.com/blog/2011/04/28/555571/and-now-for-chinese-zinc-shenanigans/

p.s. I wouldn't be using aluminum as an indicator of supply and demand either. So, we only have nickle
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[rffrydr]

Things getting tighter...and weaker: China’s copper imports falling 43% y/y in March and exports rising. Copper inventories in China may have risen 12% this year.
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[rffrydr]

The long tail of finance waging the dog--coming to an end???

http://www.steelguru.com/metals_news/Chinese_investors_mull_offshore_yuan_for_bonded_copper_resale/200714.html


I doubt it. Copper as finance (asset that never goes down) runs deeper.
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[rffrydr]

With the chinese crawling all over Africa I don't understand the dynamics behind Mongolia's lack of development heretofore. That this would be china's last frontier market and that they'd be looking for markets elsewhere stumps me. Maybe the nine-day traffic jam was part of what's coming--and why it hasn't come yet.

http://www.cnbc.com/id/42584629
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