Following two sluggish years, copper finally effected a late recovery in 2016. Optimism over President Trump’s $500 billion infrastructure plans drove the metal upward. Meanwhile, encouraging economic data from the second biggest economy and the largest copper consumer China have raised expectations of higher demand for the commodity, which in turn have led to an increase in prices. Additionally, continued workers’ strikes at major copper mines have also helped price escalation.
Meanwhile, in a widely expected move, the Fed raised key interest rates after its two-day policy meeting this week. However, the central bank’s cautious approach regarding the path of future rate hike this year weighed on the dollar, which in turn has also benefitted copper prices. Adding copper stocks to your portfolio could lead to lucrative gains at this point.
China’s Strong Economy to Boost Demand
According to the National Bureau of Statistics of China, the country’s industrial output advanced 6.3% year over year in January from the 6% increase in December. Steady growth in China’s steel industry contributed to this increase in industry output. Additionally, investment in fixed assets, including factories and buildings increased 8.9% year over year during the January–February period, much better than a rise of 8.1% in 2016. Retail sales also advanced 9.5% in the last two months.
With China being the world’s major buyer of copper, accounting for 46% of total consumption, strong industrial production and fixed asset investment data are likely to signal the nation’s demand for the red metal. The price of copper for May delivery rose roughly 0.8% to $5,865 a ton on the New York Mercantile Exchange on Wednesday, registering four straight sessions of gains. Copper prices also increased around 1% on the London Metal Exchange (LME) to $5,924.50 per ton, marking a rebound after falling to $5,652 a ton last week, which was its lowest level in the last two months.
Worldwide Labor Strikes Curb Production
Apart from robust demand from China, production disruption at major copper mines in Chile and Peru are also likely to boost copper prices. The worker strike in Escondida copper mine in Chile failed to end after the labor union rejected negotiation talks with the mines’ controlling owner BHP Billiton Limited BHP.
In a statement the union said that it will "maintain the strike for an indefinite amount of time," but also pledged to maintain calm on this matter. Escondida produced around 1 million tons of the red metal last year. This is why the 34-day strike in the world’s largest copper mine has weighed on global copper production.
Another major copper mine in Cerro Verde in Peru, which experienced huge expansion recently, is facing a labor strike. Last Friday, workers went on a strike in this Freeport-McMoran, Inc. FCX controlled mine over better working conditions and special benefit payments. Freeport has a more than 53% stake in this mine, which produced around 500,000 tons of the copper in 2016. Cerro Verde is the biggest copper producer in South America.
Additionally, at the conclusion of its two-day policy meeting ended Mar 15, the Fed raised key interest rates as as widely expected. But the U.S. Dollar Index (DXY) tumbled to 100.56, following a dovish outlook from the Fed regarding the pace and number of further rate hikes this year. The weaker dollar benefited commodities like gold, silver and copper.
An increase in demand from major copper consumer China and strikes at major mining facilities have helped copper prices to move upward recently. Adding to this phenomenon has been the unexpected impact of a Fed rate hike, which has sent the dollar higher.
Picking select copper stocks looks like a smart option at this point. We have narrowed down our search to the following stocks based on a strong Zacks Rank and other relevant metrics.
Amerigo Resources Ltd. ARREF through its subsidiary is engaged in producing and selling copper and molybdenum concentrates primarily in Chile. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 80% over the last 30 days. This Vancouver-based company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KAZ Minerals plc KZMYY is involved in mining, producing and selling copper concentrates primarily in Kazakhstan and Kyrgyzstan. This London-based company has a Zacks Rank #2 (Buy). The company's operating segment consists of East Region Operations, Mining Projects and Bozymchak segments. It operates underground mines in the East Region of Kazakhstan and open-pit mine in Bozymchak, Kyrgyzstan. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 51.5% over the last 30 days.
Lundin Mining Corporation is a rapidly growing, diversified base metals mining company with operations in Portugal, Spain, Sweden and Ireland. It currently has six mines in operation producing copper, nickel, lead and zinc. This Toronto-based company has a Zacks Rank #2. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 26.9% over the last 30 days.
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