Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Measuring Global Econcomic Health, How is Dr Copper Feeling?

Stock-Markets / Financial Markets 2012 Jul 06, 2012 - 12:26 PM GMT

By: Casey_Research

Stock-Markets

Best Financial Markets Analysis ArticleLouis James and Andrey Dashkov, Casey Research writes: Copper is sometimes referred to as "Dr. Copper," because the metal is used in so many industrial applications and is essential for many different sectors of the economy, from infrastructure to housing to consumer electronics. That usually makes its price action a good indicator of the state of the global economy.


The chart below illustrates the degree to which copper follows economic health – as opposed to gold, which is a traditionally a contra-cyclical commodity. Have a look.

This illustration paints a convincing picture: over the past five years, copper (and the economy) stagnated, while gold was on a steady uptrend. No surprises here: gold has always been a reliable hedge against economic and financial turmoil.

In 2012, copper demand started out quite strong. The International Copper Study Group (ICSG) published Q112 numbers that showed a healthy uptrend in demand: year-on-year, apparent usage grew by 9%, while refined production increased by 4%. (This is defined by ICSG as refined production + refined imports – refined exports + refined beginning stocks – ending stocks.)

China, responsible for about 40% of global copper demand, almost doubled its net imports, with a 99% annual growth rate in Q112. This does not mean, however, that the metal was used right away by industry: ICSG indicates that high import levels were accompanied by growing inventories in bonded warehouses.

This will lower demand in the near term. And it's not just China: other major sources of demand were largely stagnant in the first quarter, with the US growing by only 1%, European demand decreasing by 9%, and Japanese down by 6%.

Some analysts expect the European market to be "dead" for the rest of this year, due to the lack of trading volumes. Chinese demand is projected to soften, and its output of copper products is estimated to grow by 10-15% year-on-year. That may seem robust, but it was 18% last year, according to Beijing Antaike, a state-run metals research company. As with many official numbers coming out of China, we take these with a grain of salt, and thus expect output to be even lower than projected.

On average, the stocks of these copper companies have dropped about 35% since the end of June 2011. The stocks are more volatile than the metal itself, and in a weak economy that means rebounds are unlikely.

But are they still profitable? Yes, they are. Despite the global economic uncertainty and the volatility in the copper price, copper producers have had strong margins since Q310.

In the past three years, the net income margin of our 20 copper producers remained, for the most part, above zero. The chart shows the post-2008 growth very clearly, as well as the weakness in the second half of 2011. You can also see that the first quarter this year was a good one for copper producers, though again the results for Q2 may be disappointing due to economic uncertainties.

This pattern is exactly in line with our expectations, and it's the reason why we have not only stayed away from most copper plays the last few years, but other industrial metals as well. It's not that we only like gold and silver, but that our bearish near-term economic forecasts are bearish for Dr. Copper as well. So we've stayed away, even from well-run, profitable companies, opting instead to put them on our shopping list for when the economic situation looks so dire that they become good contrarian picks.

We are not there yet, so we still view the precious metals as the best bets for the foreseeable future.

Of course, not just any precious metal producer is a "best bet" – and with the current volatility, very careful due diligence is required. One of the best indicators of a stock poised to produce stellar gains is its takeover potential – something savvy analysts can sniff out and use to good advantage.

© 2012 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in