The following is an excerpt from Canaccord Genuity’s Morning Coffee newsletter.
Global miners have been working hard to cut supply through capex cutbacks. Canaccord Genuity Portfolio Strategist Martin Roberge believes once these measures finally bear fruit and limit base metal supply, upswings in demand should allow for sustained price outperformance.
Speaking of demand, the major swing factor remains China, where copper consumption is growing at nearly 40% on an annual basis.
This surge in copper demand has pushed copper inventories lower, but inventories are still above historical average.
This may explain why copper and copper stocks have not responded positively to improved demand conditions until recently.
Roberge believes a global growth reacceleration should sustain copper demand in 2014 and when put in a context of capex austerity, a more balanced demand-supply equation bodes well for base metal stocks.
On Monday, the OECD released the leading indicators (LEIs) for its member countries.
Unsurprisingly, global economic momentum keeps building with the OECD diffusion index rising 81%. Roberge says synchronization has been achieved among the G7 countries and interestingly, the diffusion index for emerging markets (Ems) has risen above the 50% boom-bust line.
As such, he is not as pessimistic as the consensus of pundits with regards to Ems. These countries are using their cheap currencies to export their way out of developed markets and China.
Stocks highlighted in the report include
Teck Resources Ltd. (
TSX: TCK.B,
Stock Forum),
First Quantum Minerals Ltd. (
TSX: T.FM,
Stock Forum), and
Freeport McMoran Copper & Gold (
NYSE: FCX,
Stock Forum).