By Kevin Grewal
In 2009, copper soared to record levels and the strength in the base metal is expected to remain sustainable in 2010.
One force that has contributed to the strength of copper and is expected to continue to support the metals strength is China. China implemented a $585 billion stimulus package in 2009 which was infrastructure based and resulted in the country buying massive amounts of the metal spurring supply and demand forces to impact prices.
As for 2010, China’s GDP is expected to expand by 8.5% and expects to dramatically increase the production of electric or hybrid vehicles, which would require extensive amounts of copper. Additionally, China plans to continue to focus on improving lifestyle, which means improving infrastructure which requires the use of copper. Lastly, Chinese manufacturing continues to shows signs of strength, supported by a seasonally adjusted reading of 56.6 for China’s Purchasing Manager’s Index, which was the fastest expansion seen in nearly two years.
Another force that is likely to aid in the strength of copper is the anticipated growth of India in 2010. India is expected to see its GDP grow by nearly 7% in 2010 and its demand for copper is expected to follow. India is focusing in developing its economy to be a competitive force in the global economy and realized that revamping its infrastructure will be vital to do so.
A third force expected to support copper prices are macroeconomic factors that suggest the OECD economies are in recovery mode. In the United States, home sales have risen in nine straight months, manufacturing numbers are growing and jobless claims seem to be stabilizing, all positive factors supporting an economic recovery.
Lastly, some suggest that the United States’ massive $787 billion stimulus package which allocated a significant amount to infrastructure spending will finally hit the road, which will likely spur demand for copper.
In a nutshell, copper is a bellweather for the economy and the outlook for the metal is promising due to its industrial uses, positive long-term fundamentals and the emergence of a global economic recovery. Three ways to capitalize on this include:
- Freeport-McMoran (FCX), up over 200% in 2009 closing at $80.29 at the end of the year.
- Rio Tinto (RTP), more than doubling in 2009, closing at $215.39 at the end of the year.
- Southern Copper Corporation (PCU), up 80% in 2009, closing at $32.91 at the end of the year.
Investing in these commodity based equities comes with risks and a good way to mitigate these risks is through the use of an exit strategy. According to www.SmartStops.net, an upward trend in the previously mentioned stocks could come to an end at the following price points: FCX at $77.99; RTP at $199.50; PCU at $31.34. These price points change as market conditions fluctuate and updated data can be found at www.SmartStops.net