By Aaron Tyrrel
Investing in copper stocks was a no-brainer back in 2009.
If you bought them then – and cashed in on the back of the 230 per cent rise in the spot price – well done!
But forget trying for easy money in copper stocks now…
Yes, demand is still strong. And supply is dwindling.
And the copper price probably won’t fall any time soon.
(In fact, it could still crack $10,000… even $11,000… a tonne. And even if copper fell to $6,000 a tonne, copper producers would still turn a tidy profit. That’s how good their margins are…)
But here’s what it boils down to…
Copper has had a great run.
- The spot price has more than tripled since January 2009…
- Supply is too low…
- Not enough new mines are coming online to meet demand…
Demand is huge.
The commodity data out of China shows demand is growing. Imports jumped 9.5% to a six-month high in July 2011. China’s imports of ‘copper scrap’… Which is just reclaimed copper from buildings and so on… Jumped to 306,626 tonnes at the same time.
And stockpiles are dwindling.
- Glencore reports copper stockpiles in bonded warehouses fell 50% in 2011, after they peaked in February.
- The Metals Economics Group says major copper discoveries have fallen ‘well short of what is needed to replace the copper produced’.
- And Morningstar predicts ’60% of today’s open-pit mines will deplete or go underground (at a higher-cost) by 2021′.
Copper is now only 12.5% from its two-year high. And in the highest price range it’s been in since 1998.
And that’s the problem… There’s ZERO upside.
When the copper price is rising, it’s like a floating tide that lifts copper stocks with it.
Demand is relatively strong. And risks to supply are rising. And because of that, prices are likely to be well supported going forward.
But you won’t make any easy money on the back of copper price rises.
Though if you’re prepared to do a bit of legwork, you can still make good gains.
Like if you find a stock about to get a takeover bid, you could see a healthy rise. (Like the $7.3 billion cash bid Barrick Gold offered to Equinox Minerals back in April.)
And then there are the explorers. They come out of nowhere, poke a few holes in the ground and if they hit something, their price could go anywhere.
Just take a look at what’s happened for Ventnor Resources.
Or what happened for Horseshoe Metals back in January.
So while the easy money has dried up for now, there are still profits to be made. And while copper stocks are probably no longer a ‘no-brainer’, with a little bit of thought, they still present good opportunities.
Editor, Money Morning