Another article worth a readThis one is from Newsweek by Niall Ferguson, who knows a thing or two:
Copper Is King
Gold prices are up, but another metal connects the world—and reveals our economic future
April 24, 2011
Copperfinger doesn’t have the same ring as Goldfinger. Nor would you be very impressed by a man with a copper gun.
Copper isn’t glamorous. Unlikegold, it is not likely to be recommended as an investment by Glenn Beck.Yet, before and after the financial crisis, copper has been one of theworld economy’s star performers.
Sure, you were smart if you boughtgold at the bottom of the financial crisis, back in February 2009. Withgold touching a record $1,500 an ounce last week, you’re up 75 percent.But if you’d bought copper, you’d be up 181 percent.
Today the world’s copper mines arebooming. I spent several hours last Tuesday sweltering nearly a mileunderground at the huge Konkola mine near Chin-go-la in Zambia. It’s apowerful symbol of the new economic world order. The miners areZambians. The technical guys are (white) South Africans. The owners andmanagers are Indians.
Like most Zambian mines, thisparticular one was not viable with prices below $2,000 a ton, as theywere between 1997 and 2003. But with copper up to about $9,400, it makessense to sink new shafts to reach the deepest ore, even though it meansdealing with prodigious amounts of underground water.
Here, where the mighty mechanicaldrill bores into the wall of the most recently blasted stretch oftunnel, is the sharp end of the world economy. When you switch on thelight, it’s copper wire that conducts the electricity to the bulb.Chances are the hot water that came out of your shower this morningarrived there through a copper pipe. From the corrosion-resistant coppercarbonate that makes the Statue of Liberty green to the circuit boardin your computer, the brown metal is as practical as the yellow metal isprecious.
So just why has copper beentrumping gold as an investment? The answer is partly that theextraordinarily loose monetary policies adopted by Western governmentsto combat the financial crisis have driven up the prices of nearly allcommodities.
But the key to the copper story issoaring Asian demand. Asians want modern houses with Western-stylewiring and plumbing. They want cars. They want electronic gadgetry. Sothey want copper. In 2005 China accounted for 22 percent of globalcopper consumption. In 2009 the figure was 39 percent. Try as they may,the copper miners can’t keep pace. And the supply of copper in the worldisn’t limitless. Indeed, if the rest of the world were to consume atjust half the American per capita rate (1,389 pounds in an averagelifetime), we’d exhaust all known copper reserves within just 38 years.
Asians were shocked by the pricespike of 2004–08, which saw copper prices quadruple; hence their recentrush to invest in copper mines. The big question now is whether this newscramble for Africa is worsening the disease it was supposed to cure.Rampant Asian demand has once again driven up prices. Higher commodityprices are feeding into higher consumer prices. Inflation in China hit5.4 percent last month. That makes the authorities nervous. The lastthing they want is the kind of popular unrest that was sparked by higherprices in North Africa.
All over the world, central banksare applying the brakes. The European central bank has already raisedrates. The Fed seems intent on ending quantitative easing in June. ThePeople’s Bank of China, meanwhile, has not only raised rates but alsoincreased reserve requirements for banks. Remember, this comes as fiscalpolicy is also being tightened in the developed world—even, belatedly,in the United States. Remember, too, that higher commodity prices act asa tax on consumers in importing countries. Higher prices plus lowergrowth equals stagflation.
So far these changes have hadlittle impact. But brace yourself. To my eyes, global monetary andfiscal tightening is a clear sell signal for commodities. That couldtake the shine off copper—and send a blast of cold air down theventilation shafts of Zambia’s mines.