Copper: Humanity’s first and most important future metal
Millions of feet of copper wiring will be required for strengthening the world’s power grids, and hundreds of thousands of tonnes more are needed to build wind and solar farms.
Copper (NYSE:JJC) decreased the most in four weeks, as poor economic data released on Thursday worried investors. Although the Chinese manufacturing report isn’t due till August 1st, preliminary data showed that Chinese manufacturing slid to a 28-month low. An analyst from UBS in London describes that situation, ” China has been struggling with tight credit for some time. We’ve also got Europe deteriorating and slowing demand in the West, as well as in other emerging markets.” However, some analysts are optimistic about copper in the fourth quarter. Mike Frawley, the global head of metals at Newedge, said, ” The metal will face a setback in the summer before rebounding in the fourth quarter. The outlook is positive in the long term as demand rises in emerging markets.”
On Thursday, the world’s largest publicly traded copper producer reported second quarter earnings. Freeport-McMoRan Copper & Gold (NYSE:FCX) reported earnings yesterday that beat estimates. The company reported a net income of $1.37 billion ($1.43 per share). This is an increase from last year’s $649 million (70 cents per share). The average estimate of 16 analysts surveyed by Bloomberg was only $1.33 per share. The company also reaffirmed its full-year copper sales forecast of 3.9 billion pounds, and its gold sales forecast of 1.6 million ounces.
Although China uses 40% of the world’s copper, CEO Richard Adkerson, doesn’t appear worried about the copper market in the long run. He said, ” China is the risk to the copper price today. If something were to happen with China I believe it would be temporary. The forces that have been unleashed for the global growth are not things we’re going to have to go back on. Copper is priced at about $4 per pound, about four times Freeport’s net unit cost of production. In a world that’s relatively weak, this is a remarkable copper price. We’re prepared for whatever the world brings to us but we’re very optimistic on any kind of long-run view about our business.”
Freeport is an interesting miner play as it benefits from both copper and gold price increases. Competitors include Southern Copper Corp (SSCO) and Newmont Mining Corp(NYSE:NEM).
Investors looking to hold metal miners in their portfolio may want to also consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Hot silver miners include First Majestic Silver (NYSE:AG),Endeavour Silver (AMEX:EXK), and Global X Silver Miners ETF (NYSE:SIL).
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Disclosure: Long AGQ.
