CRACK open your piggy bank and empty your penny jar. Do it now and do it fast. Forget about the gold rush; it is all about the copper rush now. The price of the metal is going through the roof, hitting $10,000 a tonne. This sort of price action means the two pence piece in your pocket is actually worth more than 2p. Sounds incredible, but how long can it last?
A good while, it seems. David Jones, chief market strategist for IG Index, says: “any self-respecting technical analyst would have to be a buyer. It’s not too ambitious to project a target of $5 a pound as a medium-term target.”
The same could be said for any self-respecting fundamental analyst since the most recent surge in price has not been a reaction to the weather conditions in Australia – the country that produces most of the world’s copper. Amazingly, not a single copper mine was closed during or after the floods, and only the Mount Isa mine and a refinery in Townsville were affected for a week after the cyclone.
The price drivers for the orange metal are much longer term. Both the developed and developing world are keen to be fed the metal as they grow, out of recession or into new economic giants. China has used up most of its stockpiled supply, and are “living hand-to-mouth” on what they have left of it, says Gayle Berry, a commodities expert at Barclays Capital.
Not only are mines struggling to offer more copper, but the existing supply is dwindling. Much like the oil industry, the established mines are running low and most of the world’s untapped resources are in politically risky places: Afghanistan and the Congo, for instance. And the problems don’t end there, these places tend also to have too few roads and railways, and the copper is buried far deeper underground so is more difficult to mine. The law is often applied irrationally in these places – mining licences can be issued and revoked on spurious grounds, so many companies find that making the several billion pound investment required to set up a mine too risky to consider. This means that we can be fairly confident that copper prices will rise in the long term.
Indeed, Barclays Capital is tipping it to their clients as the top commodity to invest in, alongside tin. But Berry warns that in the short term she would not be surprised if the price pulled back slightly: “I think the Chinese might take longer to come back into the market than many expect, perhaps not for a few more weeks.”
This sort of price dip should then be a buying opportunity. Jones agrees, but warns: “only if it slipped below the $4 mark will it start to look as if the trend is running out of steam.” So until then the copper rush is here to stay. Traders might find that if they look after their copper pennies, the pounds will look after themselves…