Copper: is it really the new gold?

General News

As the second largest traded contract on the London Metals Exchange, Copper has been touted by analysts this year as the ‘new gold’ and it looks like global demand is only on the rise.

It hit its peak for the first half of 2011 in February, when it reached record highs of more than $US4.60 a pound.

Use for copper has increased markedly in recent years, particularly given the strong growth of the emerging markets in China, India and Brazil. This has forced the exploration for the metal to extend throughout the world, from south and central America to Africa, Australia and Russia.

Stephen Bartrop, the managing director of LimeStreet Capital, said copper is currently sitting at a healthy price despite a recent dip. Having spent a decade as a geologist and more than a decade as a resource analyst, Mr Bartrop reflects that copper has always been the ‘bellwether’.

“While share prices are coming down, it’s more likely we’re bouncing on the bottom, and I think it’s similar with some of these commodities,” he said.

“Copper demand will continue to grow but I also think on the other side, supply is becoming much more constrained on a medium term view.

“In fact, you need higher copper prices to bring more marginal mines into production. While you will have times of volatility with the price, it can dip down below $4 and so forth. Fundamentally going forward, our expectations are that the copper price will continue to increase over the medium and certainly in the long term.”

The Global Industry Analysts’ Copper: A Global Strategic Business Report shows that this emerging wealth means China is the largest consumer of copper globally.  Demand for refined copper in China has been growing due to growth in various Chinese industries, such as telecommunications, energy, automotive, construction and consumer goods.

And it is this demand that Mr Bartrop said gives copper a healthy outlook on the forefront of an impressive emerging economy demand.

Investors know copper is used as an excellent conductor of electricity and is a favoured commodity by the electrical, building, and construction industries. But given the growth of wealth in the world and a new demand for manufactured goods like motor vehicles and for infrastructure, coupled with a global awareness of sustainable and more environmentally-friendly energy sources, a new wave of information supporting the efficiency of copper across many industries has emerged.

The European Copper Institute (ECI) goes as far as to say increasing the use of copper can help reduce energy losses and improve the environmental performance of electrical motors, transformers, and renewable energy systems.

A spokesman from the Institute said coppercan facilitate a 50 per cent reduction in the losses from inefficient electrical equipment and systems in European homes and business.

“Moreover, at the end of its useful life, recovered copper is 100 per cent recyclable, over and over again, without any loss of performance,” he said.

Given copper’s versatile and practical applications, Mr Bartrop is cautious in comparing the commodity with gold.  

“Gold is such a different fundamental market driver, it is more a speculative player on world economies and particularly the US economy,” he said.

“As economic positions improve, copper demand will increase but that doesn’t necessarily hold true for gold. The risk is that if the world economy was less volatile and we had some sort of synchronised growth, then I don’t think gold would necessarily be as an attractive investment.”

While there are many companies producing copper, from Altona Mining Limited (ASX:AOH), CuDeco Limited (ASX:CDU), Glencore International Plc (LON:GLEN), Ivanhoe (ASX:IVA) and Mincor Resources (ASX:MCR) to Rio Tinto Limited (ASX:RIO) and Tiger Resources Limited (ASX:TGS), Mr Bartrop tips that investors should be looking at companies currently in production stage.

That way, he said, they are not paying a premium for exploration or early development with a high degree of risk.

“The opportunities for investors are in copper production companies, and given uncertainties, particularly around cost and sovereign risk and other issues, from a corporate activity point of view, it is worth paying the premium to buy a producer rather than buy an early stage development project that may, or may not, deliver.”

-       Rebecca Richardson

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