Categories:
Base Metals
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General Market Commentary
Topics:
General Base Metals
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General Market Commentary
The Case For Copper Is Extremely Strong
The midterm elections in the U.S. are mostly behind us — with the exception of a few recounts — the end result will be more gridlock until at least 2020.
How will that affect the junior resource space we speculate in? It means there will be very little the two corrupt parties agree on, with infrastructure being the possible exception.
Infrastructure is necessary, brings good-paying jobs to people who need them, and is a way for both parties to fill up their individual and collective (state) coffers.
That’s good for copper.
Copper Is Back
The truth is copper — despite the recent pullback — has, along with uranium, one of the most compelling investment cases I’ve seen in a long time.
While everyone is busy paying attention to the trade war, copper premiums in China have surged while global inventories have plunged.
David Lilley from Drakewood Capital Management recently told Bloomberg that copper has the potential to rocket and added, “if everybody who’s sold it in the past three months wants to buy it back, I’m not sure who’s going to sell it to them.’’
The inventory decline comes despite a relatively calm year in the way of supply disruptions and a perceived slowing of the Chinese economy.
Copper is down 16.7% this year. The juniors are down even more.
Tariff worries are a legitimate concern. China is responsible for nearly half of the world’s copper consumption.
Despite the bearish sentiment, global demand remains strong.
The most recent earnings call from copper giant Freeport-McMoRan provides some good data to ponder.
The main takeaways are that speculators have been bearish and have been driving the price down through short positions.
That’s the short game (pun intended). I play long-term trends.
In the words of Freeport: deficits appear inevitable. The recent price decline is only going to exacerbate that as new project development is starting to be shelved.