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Copper: An Insider’s Perspective

Commodities / Metals & Mining Mar 30, 2010 - 03:34 AM GMT

By: Q1_Publishing

Commodities

Best Financial Markets Analysis ArticleCopper prices are up a 160% in the past year and a half.

Most investors are wondering is the run over?


Here’s someone to help us determine copper’s next move.

About a year everyone was scared. The major indices were sitting at multi-year lows. Commodities were tanking. And it seemed like the bad news was only going to get worse and worse.

It was bleak. Most investors were cashing out. No one wanted to know where they opportunities were…they just wanted out.

At the time, we had the chance to get together with Juan Villarzu to get an inside perspective on the copper market.

As the former head of Codelco, the world’s largest copper mining company, and the Chairman of Apoquindo Minerals (TSXV:AQM), a rapidly unfolding South American copper story, he’s definitely someone that has to know the copper industry very well.

At the time we got together with him he told us, “Copper will be at $2 by the end of the year, and will be above $2 next year.”

It was a bit outrageous. Copper had just fallen from $4 per pound to below $1.50 in about six months time and few saw any type of rebound. But Villarzu, who knew the situation well, did see the light at the end of a short tunnel.

Since then copper prices have rebounded to more than $3.30 per pound today. That’s a gain of more than 160%.

But the recent run in copper has sparked resurgence of uncertainty in the copper market.
That’s why we’re glad to let you know today we recently got back together with Villarzu to get another insider’s take on what’s going on with copper now.

In an exclusive interview with Andrew Mickey, Q1 Publishing’s Chief Investment Strategist, Villarzu gives us a copper industry insider’s perspective on:

- Where copper prices are headed
- Whether current copper prices are really sustainable
- The real impact of the credit crisis on the copper industry
- What copper’s supply/demand picture really looks like
- Why you “must be in South America” if you want copper
- What he looks for in prospective mining projects
- and more…

All the details are below in Copper: An Insider’s Perspective.

Good investing,

Q1 Publishing Investment Research Team

Copper: An Insider’s Perspective

Andrew Mickey: With copper at $3 per pound, where’s the demand coming from?

Juan Villarzu: The answer is China. 68% of the expected growth in refined copper consumption between 2010 and 2014 will be explained by China’s copper appetite. Russia (7%), India (5.4%) and South Korea (3,6%) are the distant followers.

Andrew Mickey: Last month China posted GDP growth above 10%. But there has been a strong rebound in the economies of Thailand, Taiwan, and a few others. Do you see the periphery countries starting to play a larger role in the copper markets?

Juan Villarzu: Since the mid-nineties copper consumption has grown much faster in the developing economies than in the developed ones.

During this period, consumption in developed economies has shrank while average annual consumption growth in developing economies, excluding China, and China has been, around 5% and 11%, respectively, I expect this trend to continue for some time.

This is consistent with expectations of a fast growth with high copper content (urbanization, infrastructure, durable consumption goods).

Andrew Mickey: As you know, quantity demand is heavily impacted by price. For example, gasoline consumption starts to drop off when prices at the pump hit $3 a gallon.

At what price do you see copper prices going before there is a significant demand impact?

Juan Villarzu: I think that the real (constant purchasing power) price of copper will fluctuate at around US$ 3 per pound of fine copper during the next five years or more.

It is not going to be a smooth ride; as in the money and exchange rate markets volatility will be a permanent feature.

As recent evidence shows, this price level does not trigger major substitution initiatives. In fact, the higher price of copper has been accompanied by higher prices of aluminum and relative prices have not changed significantly. 

I would also like to point out that copper consumption growth is not entirely explained by GDP growth; recyclability, energy efficiency, antibacterial capabilities, are features that make copper an indispensable material.   

Andrew Mickey: John Mackenzie, Anglo American’s head of copper recently said he expects global copper stockpiles to fall over the longer-term. He specifically noted, “There aren’t enough high-quality projects in the world.”

Do you see a similar situation? Why?

Learn more about what the man who ran the largest copper mining company in the world sees ahead for the supply/demand picture for copper, what he for looks for in copper development project, and get the inside scoop on the future of copper mining in South America in Part II of Copper: An Insider’s Perspective here.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2010 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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