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Tuesday, December 21, 2010

Copper to dominate commodities space in 2011

Copper to dominate commodities space in 2011 ; Copper is all set to dominate the global commodities space in 2011. Severe supply shortage and huge demand from emerging markets like China and India will turn copper to be the most sought-after hot commodity next year.

As the year gets to a close, copper price jumped from London to Shanghai this week, touching an all-time high, on speculation that the red metal will be in huge demand from developed nations like the United States and most of the emerging countries.

Copper for three-month delivery advanced 2.1 percent to $9,257.50 a ton on the London Metal Exchange (LME). "The majority of LME's stockpiles being held by one single company has created an artificially tight physical market," Wang Ning, an analyst at Xiangyu Futures Co, said from Shanghai said.

On the Shanghai Futures Exchange, copper for March delivery closed 0.85 percent higher at 68,640 yuan ($10,283) a ton on Monday.

China is the largest marketplace for copper in the world. But improved economic conditions from large copper using nations like the US have turned many to believe that copper is going to be the top moving commodity for next year. BMO Capital Markets has picked copper as the commodity of the year. In a recent survey, Barclays Capital said that copper will be the best performing commodity for the year 2011.

One of the main reasons for the copper boom is the shortage of production/supply and the booming demand for the red metal. BMO projects the 2011 copper deficit to be around 380,000 metric tons. Standard Bank says the copper deficit will be of 385,000 metric tons, widening to 562,000 in 2012. BNP Paribas looks for a supply deficit of 200,000 metric tons this year, widening to 500,000 in 2011.

With shortage outstripping demand, copper price is forecast to hit record in 2011, According to Morgan Stanley, copper price will average of $7,900 a metric ton in 2011, up from $7,300 for 2010 although down from current levels.

Metals consultancy VM Group lists an average of $8,833 but a three-month target of $9,100 and a 12-month target of $8,500. VM Group looks for prices to top $10,000, but with volatility and potential for a correction if Chinese authorities are aggressive reining in money supply.

Goldman Sachs recently said in a research report that base metals such as copper are even closer to a “structural bull market” than oil because of supply issues. In the case of crude, declining inventories and rising prices may be followed by OPEC producing from spare capacity. But for many base metals, producers are already at full capacity and existing inventories are the only “spare,” Goldman said.

Dan Denning of The Daily Reckoning has this to say on copper market: “The copper move is terrifying and exhilarating. But what is it really telling you? Well the move from $1.25 a pound to over $4 a pound took place during the Bernanke reflation and the massive Chinese credit expansion via bank lending (another US$1 trillion this year, on top of last year's $1 trillion). Copper's strength is the US Dollar's weakness, with a strong tail wind from Chinese fixed asset investment.”

Copper is the shining red metal in the global commodities space these days. And copper is going to glitter as an exchange traded fund (ETF). Result: Copper ETFs are all set to compete with Gold ETFs in the commodities world.

As base metals trading led by copper booms, the red metal has turned out to be hot favourite for investors, traders, manufacturers and commodity dealers around the world. And copper is going to get another investment edge thanks to the metal’s big ticket entry into the ETF world.

Remember that copper is getting into the ETF arena, backed by its physical strength, when the commodity price has surged to a record of 30-month high last week.

Currently, there are several Copper ETFs listed across exchanges in the United States. They include First Trust ISE Global Copper (NASDAQ: CU), Global X Copper Miners ETF (NYSEArca: COPX), iPath DJ-UBS Copper (NYSEArca: JJC).

Several ETFs backed by physical copper are hitting the global markets these days. Copper-backed ETFs have turned out to be the big commodities news recently as many analysts have predicted that they would become bigger than Gold ETFs. Gold ETFs are the biggest exchange traded funds in the world currently.

The front runner for launching Copper ETFs include JPMorgan, Deutsche Bank (NYSE: DB), iShares and ETF Securities. Recently, JPMorgan Chase (NYSE: JPM) traded a massive $1.5 billion in copper on the London Mercantile Exchange.

J P Morgan has already filed with the SEC an application for a physically backed ETF which, if fully taken up, would result in a holding of 61,800 tonnes of metal stored in the bank's Henry Bath warehouses. JP Morgan’s ownership of Henry Bath warehouses was viewed as a key element in the launch of its fund as the cost for storing copper would be low.

When it comes to copper, it is not the physically-backed Copper ETFs alone that are going to make an impact in the commodities market. Copping mining ETFs are also doing wonderfully well among investors.

Copper mining ETFs like iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC, First Trust ISE Global Copper Index (NYSE: CU) and the Global X Copper Miners ETF (NYSE: COPX) have big potential investment opportunities.
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