The Easy Way to Invest in Rising Copper Prices

by Mike Kapsch

The Easy Way to Invest in Rising Copper Prices

Forget about gold and oil prices for the moment…

Instead, you should focus your attention on another commodity that has flat-out outshined them both in recent years in terms of price.

I’m talking about copper. That’s right.

Since May 2009, copper prices have exploded nearly 200% while oil and gold prices have “only” ticked up about 70%.

And this epic run isn’t over yet... not by a long shot.

That’s because, even after falling from its all-time highs earlier this year, demand for copper is still growing over four times the rate it’s being produced...

The Copper Crunch

Today, copper is used in everything from construction to electronics to transportation to manufacturing and more.

In fact, many experts refer to it as “Dr. Copper,” stating it has a Ph.D. in economics, as it oftentimes can gauge the overall state of the global economy.

Most recently though, there were two main reasons why copper prices backed off from their record highs:

  1. Inventory: As you can see below, copper inventories (much of it China’s) have flooded the markets since mid-September 2011...

1 Year LME Copper Warehouse Stocks Level

  1. China: China accounts for just about 40% of world copper demand. In the first three months of 2012, its economy grew at its slowest pace in nearly three years. Less industry in China means less demand for copper. So copper prices slid lower.

But like I said, this dip is only temporary.

To see why, we’ll need to take a closer look at the supply side of copper.

Remember... It’s All About Supply and Demand

According to CRU Group, the copper market deficit will hit 500,000 metric tons in 2012.

Yet this shortage isn’t coming because of increasing demand. It’s happening because there just isn’t enough copper to go around.

The world’s top four listed global copper miners – Freeport McMoRan (NYSE: FCX), BHP Billiton (NYSE: BHP), Xstrata (LSE: XTA) and Rio Tinto (NYSE: RIO) – saw their copper outputs drop recently between 10% and 18%.

Just to keep up with current contracts, Codelco, the world’s leading copper miner, was forced to buy copper from an outside source earlier this year. What’s more, the copper mining industry has undershot production expectations by an annual average of 5% over the past seven years.

I wouldn’t be surprised to see this trend continue, especially as more and more good economic news comes out of the United States.

How to Play the Copper Supply Shortage

It’s not going to last forever, but copper prices are expected to climb at least until 2015. That’s when analysts say there will be enough new mines in production to match demand.

Until then, one of the easiest ways to invest in this price increase is through iPath Dow Jones UBS Copper Total Return Sub-Index ETN (NYSE: JJC), which tracks the price of copper futures on the COMEX.

Just be sure to always use trailing stops and never put more than 1% of your total portfolio into any stock investment.

Good Investing,

Mike Kapsch

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