Copper Prices to Reach Tipping Point?

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Copper prices have rallied 12% since the start of the year, but is it set for a fall?

Copper serves as a global indicator of economic health. "We trust copper because it's used in everything," explains Dow Jones Newswires reporter Tatyana Shumsky. It is an essential component in everyday products like cell phones, plumbing parts, and electrical wires.

China, being a lead manufacturing nation, consumes about 40% of the world's copper output. It is closely watched for any changes in manufacturing activity.

So it was with joy that analysts learned China's official purchasing managers' index, released Thursday, increased for a third month. The index rose to 51 in February, up slightly from 50.5 in January. Readings above 50 indicate growth.

Positive U.S. jobs data, which correlates with purchases of consumer electronics and electrical products, also boosted copper futures. Prices rose more than 1% on Thursday, bringing it within 2% of 2012 highs.

Remaining concerns
Optimistic investors should maintain some caution. February's global manufacturing data grew less than forecast, and Shumsky explained that industrial and manufacturing data from China doesn't quite match the high level of the country's copper imports. This means there could be an excess supply of copper lying in storage. It could also mean China is equipped with enough copper to keep new import demand from reaching expectations.

Reuters' Manolo Serapio Jr adds, "Analysts say Chinese demand has to recover strongly to justify a further increase in prices. While China's latest manufacturing data beat expectations, some think it could discourage more monetary easing by Beijing, which could dent copper demand."

Business section: Investing ideas
What do you think is the future of the copper industry?

If you're interested in tracking the performance of copper stocks, we list the four trading on the U.S. exchanges below. (Click here to access free, interactive tools to analyze these ideas.)

1. Freeport-McMoRan Copper & Gold (NYSE: FCX  ) : Engages in the exploration, mining, and production of mineral resources. Market cap of $40.68B. The stock has lost 15.56% over the last year

2. Lihua International (Nasdaq: LIWA  ) : Engages in the production of copper replacement cable and wire products in the People's Republic of China. Market cap of $183.78M. The stock is a short squeeze candidate, with a short float at 13.18% (equivalent to 21.95 days of average volume). The stock has lost 44.86% over the last year

3. Southern Copper (Nasdaq: SCCO  ) : Engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. Market cap of $27.51B. The stock has lost 17.78% over the last year

4. Sterlite Industries (India) (NYSE: SLT  ) : Copper Industry. Market cap of $33.91B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.37). The stock has had a couple of great days, gaining 8.15% over the last week.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.

The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Motley Fool newsletter services have recommended buying shares of Sterlite Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2012, at 1:41 PM, baystreet187 wrote:

    just as a note, the MKT cap for SLT is off. Yahoo Finance and Google Finance have not accounted for the "outstanding" shares properly as each ADR share available on the NYSE is worth 4 shares in the sensex after the recent split last year.

    The way google and yahoo have it tabulated is saying each ADR is equal to 1 sensex which is not the case. Thus making the Mkt Cap much less than the 30B stated. If you have a Standard and Poors report they have the correct number which from memory is about 8-9 Billion Mkt cap...

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