The price of copper has more than doubled in two years, the global economy seems to be slowing, and copper stockpiles are growing. Even the ramping price of the penny metal is starting to look doggy (as in "rolling over") on the charts. And Goldman Sachs, which went to a strong buy on commodities last October, is saying it's time to take profits.
So should investors hit the rip cord on copper?
Not according to Nicholas Snowdon, base metals analyst for Barclays Capital. Snowdon tells Nesto and me in the accompanying video that the fundamental story is alive and actually improving by some measures. Snowdon cited at least three factors that will work in copper's favor for the rest of 2011.
*Copper production is maxed out for the next few years.
*Global demand remains strong, suggesting higher prices, given the maxed-out supply.
*The Chinese, who consume 40% of the world's copper, have worked through a stockpile of scrap.
"The Chinese have to come back into the market (for the bull thesis to work)," says Snowdon, citing the linchpin in his outlook. That's why he went to Chile. Because it's one thing to listen to the Chinese, who didn't mention stockpiling copper until after the fact, and another to hear it from the copper producers themselves. In Chile, Snowdon found companies investing furiously in mining capacity -- an investment that won't pay off in higher production for five-odd years.
Copper is often referred to "Dr. Copper" because the metal seems able to predict economic growth better than most economist PhDs. Certainly that was true from the depths of the recession until very recently. Copper is currently trading at $9,780 per ton, more than 3% lower than the $10,178 highs made on St. Valentine's day. That's not exactly a massacre, but it's enough of a drop to threaten a steep uptrending support line on the chart.
So who is a trader to believe -- the sharp and articulate Snowdon, who sees a rally to $13,000 by year end, or the "global growth is slowing" argument starting to pick up steam in the markets?
Before you answer, hear the Barclays analyst out as he makes his bullish case in the video. Then let us know what you think at firstname.lastname@example.org or in our comment section.
- base metals
- Barclays Capital
- Goldman Sachs