Investors seeking precious-metal exposure may want to consider adding copper to their portfolios. Institutional and retail investors alike have been loading up on another metal, gold, through ETF's such as the SPDR Gold Shares
Supply declines, demand stays strong
Over the first seven months of the year, the global consumption of copper stood at 11.23 million tonnes, which outpaced supply of 11.17 million tonnes. Production of the metal by large copper producers is also declining. The head of Rio Tinto's
Much of the slowdown in production owes to the decreasing quality of ore found in copper mines. Years of depressed prices made searching for new copper resources unprofitable for the large miners. So much of the production today comes from depleted mines that require greater costs to keep quality production on track. In addition, once new deposits are found, it takes years to begin producing copper for use. In the near term, any new findings won't be able to negate the additional demand.
Feeding China's hunger
China is one of the world's largest copper consumers. In the face of the financial crisis in 2009, China focused its massive stimulus package on continued infrastructure buildout, including a large investment in stockpiling copper.
Copper traders believe that China's State Reserves Bureau purchased between 250,000 and 300,000 tonnes of copper at about $3,500 per tonne. With prices now hovering around $8,350 per tonne, China is sitting on a substantial profit of close to $1.5 billion. If China begins to sell off much of its additional copper inventory, it could potentially slow the metal's price appreciation. However, China's copper usage is expected to continue to grow, and if the global recovery keeps accelerating into next year, I believe the additional copper will probably still not be enough to meet the increasing worldwide usage.
The way to play
Investors can also play increasing copper prices by investing in a country whose overall economy leans heavily on copper production. One such play is Chile, where copper represents about 50% of overall exports. Investors can gain exposure to Chile by purchasing shares in iShares MSCI Chile Investable Mkt Idx
Finally, if you're feeling less adventurous, iPath Dow Jones UBS Copper Total Return ETN
Do you think demand for copper will stay strong? Let us know in the comment box below.