King Copper Reigns Supreme By David J. DesLauriers27 Jan 2006 at...

King Copper Reigns Supreme

By David J. DesLauriers
27 Jan 2006 at 07:40 PM EST


TORONTO (ResourceInvestor.com) -- The latest quoted spot copper price is a staggering $2.25 per pound, having run up from the $2.10 level over the last week. Curiously, prices for the metal have risen alongside rising inventories, which are up about 30% over the last month.

Analysts



Reuters reported today that traders believe that there are signs that the market is peaking. Of course, this has been the wisdom all the way up as the price continued its heated ascendancy.

Indeed, almost every analyst covering the metals has been bearish on copper, and forecasts for 2006, 2007 and beyond are well below current prices. The forward curve seems to be challenging the dubious arguments of the soothsayers, however, and has firmed up very nicely in the last two months. The December ’06 contract is finally above $2 per pound, and even December ’07 has moved up smartly to the $1.78 level.

Shares

In November of last year, RI ran a story entitled “If Copper Prices Fall, It Won't Matter for Investors”, and at that time the tone was one of frustration. Copper was then trading at $1.94 per pound – and the December ’06 contract quoted above at its current $2 per pound was only $1.56 a pound. Cheerfully, as copper prices have continued higher, investors have finally become somewhat willing to jump aboard, and the expression of frustration in the inability of copper producers and developers to see performance from their share price has ameliorated to a degree.

We pointed to Frontera Copper [TSX:FCC], then trading at C$1.99 as an example of an overlooked situation. Today, FCC closed at C$2.60 per share, and clearly has responded somewhat to rising prices.

Also featured was Constellation Copper [TSX:CCU], a company just on the cusp of copper production. At the time, CCU shares were changing hands at C$1.16 – today CCU closed at C$1.97, having just hit a high of C$2.13.

Last but not least, Quadra Mining [TSX:QUA] was given a mention as shares languished at C$4.90. Today, QUA closed at C$6.37 on the Toronto Stock Exchange.

Conclusion

Despite our criticism herein of base metal analysts in general, we too predicted copper prices would soften this year in a popular article published just before the New Year. We gave a range of $1.60 to $2.40 per pound for copper in 2006, and suggested that by the end of the year, the red metal would be trading somewhere between $1.60 and $2.00 on the back of global economic weakness.

Even after the recent swelling of investor enthusiasm for copper stories, however, the near-term producers are trading as though copper prices will average $1.20 going forward. If prices can stay in the range we sighted, and as the forward curve continues to strengthen, there will without a doubt be much more room for upside in the shares of the developers, and the producers.

And don’t count out $2.50 copper – the ‘experts’ can be wrong for a sustained period if the Chinese juggernaut continues its tremendous and inexorable march towards a better standard of living