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The Escondida mine problems are only the tip of the iceberg for Copper, which appears to be in a bit of a panic since workers of BHP Billiton Ltd.’s Escondida copper mine in Chile started an indefinite strike on February 9, forcing a force majeure declaration on its shipments.
Adding more fuel to the fire is a one-month delay to exports at Indonesia’s Grasberg mine when Freeport-McMoRan suspended copper concentrate output while in negotiations with the government over the terms of its mining permit which has expired.
Goldman Sachs believes these troubles, at the world’s two largest mines, could remove as much as 110,000 tons of annual output, sending the market into a global shortage.
Last weeks 5% surge in copper makes it the third best-performing commodity contract according to the Bloomberg Commodity Index, and follows a 28% surge since the October 24 low of $2.08/lb, which is in response to sustained demand from China and President Trump’s promise to spend $1 trillion in infrastructure over the next 10 years.
I don’t want to downplay the significance of these recent events, but if they are resolved quickly, they may actually indicate a short term “panic buying” top in the price of copper. If not, they could escalate sending the price of copper much, much higher. One thing is certain, they have most likely pulled the looming gigantic supply deficit in copper forward, and are only the tip of the iceberg when it comes to the new bull market in the price of copper.
Let me explain:
As you can see in the chart below, beginning in 2018/19 there is a massive 10 million ton supply deficit facing copper over the next 10 to 15 years and beyond.
Source: Visual Capitalist. |
This supply deficit is unlike anything we’ve ever witnessed before. As a comparison, the small white area you see between the black line and green shaded area back in 2003-2005 (I know, it’s barely visible), sent the price of copper from a low of $0.75 a lb. to over $3.50 lb.
Imagine how high copper prices could go once we leave the eye of the storm we are currently in? One thing is for sure, over the next several years, as the new bull market in copper hits full steam, the 2011 high in the price of copper futures at $4.64 lb. (see chart below) will be broken to the upside in a big way.
Understanding the huge deficit facing copper beginning in 2018/19, which may now be pulled forward to 2017 given the troubles at the Grasberg and Escondida mines, and knowing that markets are forward looking, on 1/11/16 Sven issued the first recommendation for his new newsletter Global Growth Stocks – a mid-tier and deeply undervalued copper miner.
Notice in the chart below, the exact intra-day low in the price of the copper futures, and the end of a five year long bear market came on 1/15/16, just four days after Sven issued his copper recommendation.
Chart of copper futures courtesy of Thinkorswim. |
Sven’s recommendation is currently up 28%, but as you can see in the chart above, the new bull market in copper is still in the 1st inning. And according to Sven, his recommended copper play is still flying way below the radar and is extremely undervalued and is on the verge of exploding higher.
However, it’s not too late to add this mid-tier copper miner to your portfolio for what could potentially be life changing gains. What’s more, the company pays a 5% dividend, so why not own this stock, use a dividend reinvestment plan to buy more shares on the cheap, and increase your position size for when the share price goes parabolic?