Bask in the Orange Glow of Copper


"Macquarie estimates 2011 copper shortage may be largest since 2004."

While precious metals, gold and silver still rule the roost for investors, the industrial metal complex may provide better long-term returns. As the name implies, this group of metals finds itself in variety end products and forms the backbone of modern economies. . .but only one is king of them all.

Used in various infrastructure, electrical and power-generation products, copper could be the best way to play the industrial metal complex. After a lull in prices caused by perceived slowing economic growth, copper futures have recently hit fresh three-month highs. As investors warmed up to the idea that the global recovery is still intact, copper has surged. In addition, stockpiles on the LME have fallen about 20% since February. Currently, these inventory levels are equal to about eight days of global demand. These surpluses could shrink as various bank analysts and executives from copper producer Freeport-McMoRan have stated that low ore grades and scarce new resources will dwindle supplies. Australia's Macquarie Bank estimates that 2011's shortage may be the largest since 2004.

Emerging market growth is one of the main bullish catalysts for copper investment. China is the world's largest consumer of copper, equating to nearly 27% of global supply. The Asian Dragon imported 3.2Mt of the refined metal in 2009, up over 119% from 2008 levels. Production of refined copper in China rose 6% to a record 422,000 tons in June as producers raised output targets. India's copper demand is set to grow by 7%11% through 2011, as it expands its energy transmission architecture. As other developing nations begin to improve their electrical and water infrastructure, the long-term demand for copper will only increase.

While gold and silver get all the attention, the long-term base metals rally chugs on with copper as the star of the show.

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