{"id":102690,"date":"2017-02-28T10:34:42","date_gmt":"2017-02-28T15:34:42","guid":{"rendered":"http:\/\/countingpips.com\/?p=102690"},"modified":"2018-06-05T22:48:02","modified_gmt":"2018-06-05T22:48:02","slug":"supply-shock-hits-copper-industry-hard","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/02\/supply-shock-hits-copper-industry-hard\/","title":{"rendered":"Supply Shock Hits Copper Industry Hard"},"content":{"rendered":"
February 28, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Supply<\/p>\n

\"LouisIn the lucrative world of small-cap investing, a supply\/demand imbalance always piques my interest.<\/p>\n

Those who position themselves alongside a fantastic supply shortage are virtually assured to profit.<\/p>\n

Let\u2019s take the prevailing shortage of olives as a simple example.<\/p>\n

Erratic weather in Italy, Greece and Spain has been wreaking havoc on regional harvests, and no crop is more sensitive to climate irregularities than olives.<\/p>\n

In Italy, hot and muggy conditions were perfect for fruit flies, and they ravaged olive groves. Consequently, Italy\u2019s olive production will fall by 50%.<\/p>

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Worse yet, when you combine Italy\u2019s plight with a heat wave in Greece and floods in Spain \u2014 the olive market is in a full-blown supply crisis.<\/p>\n

Now, assuming that olive demand remains constant, the price of olives and olive derivatives must adjust upwardly, which is exactly what\u2019s happening.<\/p>\n

\"Spanish<\/p>\n

So how do investors benefit?<\/p>\n

It\u2019s simple, really\u2026<\/p>\n

During shortages, suppliers can charge higher prices, which flow straight to the bottom line \u2014 resulting in higher stock prices.<\/p>\n

The bottom-line impact is even greater in the small-cap world, as such stocks are known for their upward volatility.<\/p>\n

Bottom line, I\u2019m aware of every shortage happening in the world \u2014 even of olives.<\/p>\n

Unfortunately, there\u2019s no direct way to invest alongside the explosion of olive prices.<\/p>\n

But that\u2019s OK \u2014 another supply shortage is beginning to get serious. And this particular supply shortage is something we can play, too.<\/p>\n

I asked my senior analyst, Martin Hutchinson, to get you up to speed.<\/p>\n

Click below for the details.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese
\nChief Investment Strategist, Wall Street Daily<\/i><\/p>\n

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Copper Outshines Gold in 2017<\/h2>\n

\"MartinCopper is on a tear so far in 2017, with the base metal up 11% on the London Metal Exchange.<\/p>\n

I\u2019m very bullish on the trend continuing, which puts a small-cap Canadian miner in the cross hairs.<\/p>\n

The stout miner I\u2019m tracking is enjoying increased production from its copper mines in Canada and Peru, and the company also has a mine in Arizona gaining traction.<\/p>\n

But before I reveal the company, I\u2019ll break down my top five bullish forces that will keep copper shining in 2017.<\/p>\n

Bullish Force #1<\/u><\/b>: Monetary Policy Worldwide<\/b><\/p>\n

Now that the world economy is growing again, a decade of ultraloose monetary policies has led to higher inflation and faster growth in commodity prices.<\/p>\n

Copper is in a prime position to benefit in an inflationary environment.<\/p>\n

Bullish Force #2<\/u><\/b>: Faster U.S. Growth<\/b><\/p>\n

President Trump\u2019s plan to spend on infrastructure<\/strong><\/a> \u2014 along with his deregulation initiatives \u2014 is beginning to produce a burst of faster growth in the United States.<\/p>\n

The S&P 500\u2019s 11% uptick since early November doesn\u2019t hurt, either.<\/p>\n

Since U.S. growth is bound to impact global growth as well, copper will benefit.<\/p>\n

Copper, known traditionally as \u201cDr. Copper,\u201d is the one commodity most sensitive to the state of the global economy.<\/p>\n

Thus, economic sluggishness in 2012\u201316 caused its price to decline.<\/p>\n

But the opposite is happening in light of the recent growth spurt, which is already reflected in higher copper prices this year.<\/p>\n

Bullish Force #3:<\/u><\/b> Restricted Supply<\/b><\/p>\n

The next major increase to the global copper supply won\u2019t happen until mining begins at Mongolia\u2019s Oyu Tolgoi project, which is controlled by Turquoise Hill Resources.<\/p>\n

However, construction has yet to start.<\/p>\n

The political risks in Mongolia are substantial, and mining operations won\u2019t come on-line until 2020 at the earliest.<\/p>\n

Meanwhile, output from Chile\u2019s copper mines is declining. And Freeport-McMoRan\u2019s Grasberg mine, in Indonesia, has restricted supply even more.<\/p>\n

The Indonesian mine is bedeviled by labor unrest and an increasingly nasty long-running dispute between FCX and the Indonesian government.<\/p>\n

Bullish Force #4<\/u><\/b>: Electric Vehicles<\/b><\/p>\n

Every Tesla electric vehicle uses three times the amount of copper as a conventional internal-combustion vehicle.<\/p>\n

Moreover, Tesla intends to produce some 500,000 vehicles in 2018.<\/p>\n

Tesla\u2019s increased output alone will add 35,000 tons to copper demand.<\/p>\n

Oh, and Tesla isn\u2019t alone in its plans to ramp up production of electric vehicles.<\/p>\n

So copper demand will rise more rapidly than analysts\u2019 projections.<\/p>\n

Bullish Force #5:<\/u><\/b> The Supply\/Demand Imbalance<\/b><\/p>\n

Copper demand was expected to exceed supply by 2019 even without my two accelerating factors (faster economic growth and increased electric vehicle production).<\/p>\n

Once we account for those factors, the supply\/demand imbalance will further spark copper\u2019s ascent.<\/p>\n

Of course, to invest alongside higher prices, we could buy shares in one of the major copper companies.<\/p>\n

The most solid in terms of supply and political risk is Southern Copper (SCCO).<\/p>\n

But to gain greater leverage, I recommend midsize miner Hudbay Minerals (HBM) \u2014 a $2 billion capitalization company that produces copper, gold and zinc.<\/p>\n

The company\u2019s mines are located in Peru and Canada \u2014 and it also runs a stateside operation in Arizona.<\/p>\n

I particularly like how levered Hudbay Minerals is to the price of copper, as copper represents roughly two-thirds of revenue.<\/p>\n

The latest regulatory filings looked good across the board\u2026<\/p>\n

Copper production was up 19%, gold production was up 14%, silver production was up 34% and zinc production was up 8%.<\/p>\n

It\u2019s worth noting that low copper prices and the launch of a new Peruvian mine meant a breakeven year in 2016.<\/p>\n

However, its cost of production (after subtracting credits for other products) was $1.52 per pound, which lies well below 2016\u2019s copper price and far below copper\u2019s current price of $2.74.<\/p>\n

With operating cash flow of $122 million against total debt that sits at 72% of equity, I believe Hudbay Minerals is a real bargain.<\/p>\n

Throw in a dividend of $0.02 per share and you\u2019ve got the perfect \u00e5investment to benefit from higher copper prices.<\/p>\n

Good Investing,<\/p>\n

Martin Hutchinson
\nSenior Analyst, Wall Street Daily<\/i><\/p>\n

The post Supply Shock Hits Copper Industry Hard<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com In the lucrative world of small-cap investing, a supply\/demand imbalance always piques my interest. Those who position themselves alongside a fantastic supply shortage are virtually assured to profit. Let\u2019s take the prevailing shortage of olives as a simple example. Erratic weather in Italy, Greece and Spain has been wreaking havoc on regional harvests, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-102690","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102690","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=102690"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102690\/revisions"}],"predecessor-version":[{"id":127849,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102690\/revisions\/127849"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=102690"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=102690"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=102690"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}