For the gold and silver markets, the year has been tumultuous at best, with an anemic 0.9% rise in gold futures and a 2.5% decline in silver futures.
Copper on the other-hand has risen about 2.7% since the end of last year!
A recent report from MarketWatch gives some perspective on why copper may be doing so well in comparison to gold and silver.
One main reason according to the report is China, who consumes 40% of the world’s annual copper production.
Some analysts, like John Person of NationalFutures.com, claim that since copper prices have either been climbing or have remained stable, the outlook for the world economy may not be so bleak. Although China’s economy has slowed somewhat, major infrastructure projects are continuing, which accounts for a big share of where the copper gets used according to Adrian Day Asset Management in Annapolis, Maryland.
Person goes on to cite the housing sector in the U.S. and data showing builder confidence being at its highest level since 2007. A rebound in housing construction here in the U.S. and globally would certainly provide a big boost to copper prices.
“The U.S. jobs data and other economic reports have suggested growth is moderating, but copper prices are revealing that economic growth, while not robust, is certainly not reversing,” explains Person.
In addition to these numbers, it’s also being reported that the Chinese government is implementing other stimulus measures like infrastructure projects, which will also help buoy demand for copper.
With these variables in play, many analysts expect modest gains in copper over the next year…not a wild bull market, but modest gains over time.
Of course, there are two sides to the price of everything – we’ve discussed demand, but what about supply?
Copper mine production and the ability to meet demand also have a big impact on the price of this commodity metal.
According to Andrew Rosenberger, senior portfolio manager at Brinker Capital, “Relative to other base metals, mine production [for copper] has underperformed expectations, creating tighter supply and demand fundamentals.”
For example, in 2011, copper supplies saw a deficit of 157,000 metric tons. And while we may see a surplus in 2012, growing demand, primarily in China, will keep the demand high. Absent any large discoveries, it’s projected that global copper production will not be able to keep pace with the growing demand.
One reason for this shortage is the amount of time it takes to bring a new mine online, which is 10 years on average. This leads analysts like Adrian Day to claim that we likely won’t have a “…major producer in 2020-2025 that we don’t already know about.”
This news is certainly promising for investors who wish to buy copper bullion, or already own it. Over the long term, the simple fundamentals of supply and demand will likely keep copper strong.
