Relentless Global Demand will result in a Copper Shortfall in 2013. Here’s how to Profit from the Inevitable Price Surge
Last year was quite a mixed bag for the red metal.
After a strong start in Q1, copper price lost over 17 percent during the summer as the dread of a slowing Chinese economy and ongoing woes in Europe sank in.
A brief resurgence in August and September erased some of the losses, only to be hit again in October.
When it was revealed in Q4 that China finally snapped its seven consecutive quarters of negative growth, the metal closed the year out on a more positive note…but was still down 8 percent from its 2012 peak.
So far, 2013 looks to be a continuation of last year’s volatile performance, given how a number of other key commodities have shown weakness of late.
But then came some mind-blowing news this past week from Bloomberg that copper investors couldn’t be more thrilled about.
It reported that China’s manufacturing and export sectors are currently growing at their fastest pace in two years…and are desperate for copper beyond belief.
In December, the Middle Kingdom required 2.6 million miles of copper cables…enough to circle the globe 105 times.
And that number is expected to climb higher still…
According to Goldman Sachs, copper consumption in China will jump 8 percent to a record 8.822 million metric tons in 2013.
Might I add that that equates to a whopping 40 percent of the world’s inventory.
What’s even more alarming is the fact that this growth will actually result in a global supply deficit of 6,000 tons in 2013.
For your information, 2012 had a copper surplus of some 216,000 tons.
While 6,000 tons may not be a massive number, Goldman predicts this shift from positive to negative territory is symbolic enough to send copper prices northward.
And not only will the metal be bullish on the strength of China’s voracious consumption…copper companies will benefit as well.
You see, it was reported by Barclays Plc that despite also being the world’s largest producer of copper, China will still need to import well over 2.1 million tons to meet domestic demand this year.
That jump will come as a welcome relief for copper giant Freeport-McMoRan Copper & Gold (NYSE:FCX).
If you’ve been scanning the stock ticker the past few months, Freeport’s recent decision to diversify into oil and gas has not translated well for its share price.
However, with copper demand showing upbeat growth in the year ahead, we can expect Freeport and others to ramp up their red metal output.
And when copper orders from China start to pour in – watch the stock ascend.
This will also have a trickle-down effect on the small caps.
Be it an explorer or producer, junior copper miners can expect the growing demand to push their shares up as well.
In my opinion, no more will this be apparent than with my recent recommendation, NovaCopper (AMEX, TSX:NCQ).
This Canadian explorer is focused on the Ambler mining district of Northwest Alaska which is teeming with copper, zinc, lead, cobalt, gold and silver.
Last year, the Company completed a Preliminary Economic Assessment of their Arctic deposit and determined that it was feasible to construct a mine there.
We can see why: they’re sitting on an impressive indicated mineral resource base of 19.4 million tonnes (4.1% copper, 5.8% zinc) and inferred resources of 11.4 million tonnes (3.5% copper, 4.8% zinc).
What’s more, it’s been trading at or near its 52-week low since December, giving it a market cap of just $100 million.
Translation: NovaCopper’s resources offer solid long-term upside while making itself an attractive (and very affordable) takeover target.
For a company like Freeport willing to risk $9 billion on oil and gas acquisitions, a jewel like NovaCopper should be a no-brainer.
Mark my words…2013 is going to be an exciting and profitable year for copper bugs.
Copper needs to be on your investment radar now if it isn’t already.
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