Prices of copper and many copper stocks have moved down lately, along with stock markets. That’s because of investor concerns about the global economic recovery, ongoing European debt problems and continued weakness in U.S. housing markets.
In addition, the March earthquake/tsunami/nuclear disaster in Japan crippled many of that country’s factories. These facilities are now resuming production, but Japanese consumption of metals, including copper, will need more time to return to pre-disaster levels.
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Long-term outlook for copper—and copper stocks—remains bright
Even so, copper’s long-term prospects look bright, for a number of reasons. For one, copper demand should rise as Japan continues to rebuild. That’s because the metal is heavily used in the power-transmission and construction industries, in cables, wires and plumbing.
Another plus for copper is long-term Chinese demand. China is now the world’s biggest copper consumer, accounting for about 40% of global demand. The long-term outlook for the Chinese economy remains positive. Moreover, as more Chinese consumers achieve a higher standard of living, copper demand could move even higher.
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Tightening supply could further push up copper prices
Copper should benefit not just from rising demand, but also from tightening supply. In the short term, labour problems and technical delays will continue to slow global copper production.
Over the longer term, ore grades are falling at many major mines around the world as producers use up the easy-to-mine ore zones in their copper deposits. Environmental issues are also making it harder for companies to acquire permits for new mines.
High prices will, of course, boost exploration efforts to discover new mines. Meanwhile, rising copper prices will lead mining companies to re-evaluate copper deposits they had previously dismissed as too low-grade to mine when prices were lower. Within existing mines, parts of a deposit that formerly seemed like waste rock can become profitable at higher prices.
Still, the combination of rising demand and uncertain supply will likely push copper prices higher over the next few years. We continue to feel that the best way for investors to profit is by investing in copper stocks, or in exchange traded funds that hold them.
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