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In April of 2013 the Chilean Copper Commission (Chile is the world's
largest producer of copper) predicted global demand for copper will rise by
1.4 percent this year to 20.829 million mt. Global mine production will rise
3 percent to 17.526 million mt to create an estimated world surplus of 68,000
mt, rising to 89,000 mt in 2014.
There are many reasons to be bullish on copper
Global surpluses of 68,000 mt in 2013 and 89,000 mt in 2014, are, in the
world of copper supply, fairly tight conditions. Perhaps even more
significant, no one is calling for much in the way of a price decrease.
Why are analysts not calling for much of a price decrease? Well, many
mines do not come online on time and the disruption rate, the amount of
promised copper that fails to materialize is now as high as 8 percent -
operating mines can suffer production stoppages/slowdowns or move into lower
grade ore.
A long term structural trend became evident in the industry in 2012 -
shortfalls in targeted production were characterized by a fall in grades and
recoveries rather than unexpected disruptions.
Chile produces a third of the world�s copper and has seen a seven fold
increase in energy costs over the last ten years, also because of a severe
water shortage in the high desert, where most of the country�s major copper
mines are located, water must be pumped from the ocean to almost 800 meters
above sea level and then pumped hundreds of kilometers to the mines, of
course the seawater must also be desalinated.
CRU estimates Chile�s copper production costs have risen 60 percent over
the last seven years compared to a world average of 30 percent. Chile�s state
copper giant, Codelco, has seen a 57 percent cash cost increase between 2010
and 2012.
Chinese end demand is growing and consumer destocking has ended.
Many of the world�s largest mining companies have delayed or outright
halted expansion plans � BHP Billiton, the world�s largest miner, has said it
will not spend the $80 billion slated for expansion by 2015.
There is a lack of good substitutes, plastic piping replaces copper piping
but this has been going on for years, aluminum can replace copper in
electrical cables but more is necessary for the same effect and connections
are poor which can cause fires, this has lead to municipal building codes
actually banning aluminum from being used for residential wiring.
There has been a recent surge in warehoused copper stocks, the increases
reflect incentives offered to store metal in those locations. Glencore owned
Pacorini has been offering incentives of more than $100 to deliver copper to
their warehouses. These incentives have drawn usually unseen stocks into the
public�s eye perhaps distorting impressions.
Perhaps the biggest reason to get bullish on copper are the massive costs
and risks involved in finding and opening new mines in often geo-political
risky countries where a miners social license to operate is shaky at best.
Copper prices need to be significantly above marginal cost, in other
words, prices need to stay high enough to provide miners with an adequate
return on their investment for building today�s much more expensive
and riskier new mines. There is also a significant additional
cost in keeping production constant year over year.
If copper does not stay well above miners marginal costs the much needed
new mines will not be build.
Conclusion
Global growth is on the path for continued improvement in 2013 - metal
consumption will expand. Excess copper stocks are being taken up by traders,
warehousing companies and soon ETF�s.
Copper, one billion new consumers, over 800 million people to be born
between now and 2025 and a massive current, and future, infrastructure deficit should all be on
our radar screens.
Is an investment opportunity in copper on your radar screen?
If not, maybe one should be.
rick@aheadoftheherd.com
www.aheadoftheherd.com
Richard is the owner of Aheadoftheherd.com and invests in the junior
resource/bio-tech sectors. His articles have been published on over 400
websites, including:
WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette,
VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire,
CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes,
ninemsn, ibtimes, businessweek.com and the Association of Mining Analysts.
If you're interested in learning more about the junior resource and
bio-med sectors, and quality individual company�s within these sectors,
please come and visit us at www.aheadoftheherd.com
***
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This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources
he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts
no responsibility or liability as to its accuracy or completeness.
Expressions of opinion are those of Richard Mills only and are subject to
change without notice. Richard Mills assumes no warranty, liability or
guarantee for the current relevance, correctness or completeness of any
information provided within this Report and will not be held liable for the
consequence of reliance upon any opinion or statement contained herein or any
omission.
Furthermore, I, Richard Mills, assume no liability for any direct or
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