Got to wonder when the bargain hunters will emerge in the commodities market. Especially in the market for base metals such as copper, zinc, and nickel.
Copper is down 24% from its April high. Zinc is down 38% and nickel 34%.
Selling has been driven by fear that the global economy is slowing and that China is cutting back on purchases. Copper tends to closely track China’s financial markets and the global economy since so much of the demand for the metal comes from the construction and manufacturing sectors.
Traders have also been selling in the belief that they’ll be able to re-establish positions later at a lower price.
So when will buyers emerge to pick at these bargains?
It looked like buying interest was picking up last week—until Friday when the horrible U.S. jobs number—only 41,000 private sector jobs created in May—raised worries about U.S. and global economic growth to a new height.
In my opinion base metals won’t start to recover until fear starts to recede—even if copper at a price of $6,125 a metric ton on the London Metal Exchange yesterday is at an eight-month low. That makes the price of copper, especially, a good indicator of the balance of fear and greed in the financial markets.
Right now fear is way ahead.
EdMcGon and johnsonle9 –
Thanks for the help. The infomine actually has charts too. Nice.
Bilbo, I was looking for the same. Ran accross this site. Look under commodities.
http://www.infomine.com/
Sigli,
Thanks a lot for the info. Have a look at Agnico-Eagle Mines Limited (AEM), European Goldfields Ltd. (TSE:EGU) and Orvana Minerals Corporation (TSE:ORV). I added them to my watch list with your suggestions. There are experts that think we are in for a round of consolitation in the mining industry. Silver looks good as well. I appreciate any input.
Full disclosure: I do not own any of them.
jrb,
Actually, I would call them safe plays. I know it sounds odd to refer to leveraged ETF’s as safe, but it’s true. What has been done to fix the problems in Europe? Other than throwing money at their banks, and demanding the PIIGS wreck their economies with austerity measures (although well-deserved), virtually nothing has been done. And we still have the ever-present risk of EU breakup.
I will add that EPV will be the first to go from my portfolio, because it doesn’t make sense to hold that AND the euro shorts. Eventually European exporters will profit from the euro’s decline, if they haven’t already.
As for the euro shorts, can you justify to me why the euro is worth more than the dollar? Don’t get me wrong, I don’t think the dollar is any great shakes. But the euro is at least no better in value.
EdMcGon,
Do you think EUO, EPV, and DRR are still good plays despite their recent run-ups? (e.g. do you think Europe will continue to get much worse to drive these up?)
bilbo,
Copper is shown on the MSN Money site:
http://moneycentral.msn.com/investor/market/commodities.aspx
Something to keep in mind. When the copper prices start to go up, they will charge forth. You will need to be sharp, or have bought a little early.
I think.
Mopama, Great idea! Don’t forget to check the currency hedging and loan denomination. EURO mine + EUR loans could look pretty tasty.
Inmet may be an idea for you, but are more of a global play (Canada, Turkey, New Guinea, Spain, Finland, and Panama). They just opened Cobre Las Cruces in Spain. It’s one of the highest concentration copper deposits in the world. LUK (30% owner, bought from Rio Tinto) estimated production costs at .49 Euro/pound.
Happy fishing.
What is a good site to watch commodities such as copper? Tks.
Jim,
Is Chinese real estate starting to heat up again?
http://preview.bloomberg.com/news/2010-06-08/hong-kong-residential-site-auction-fetches-more-than-forecast-1-4-billion.html
zak,
Funny you should ask. That is ALL I have in my portfolio now: DRR, EUO, and EPV.
And I’m considering buying back the market index shorts SDOW, SPXU, and SQQQ. I sold them recently for profits, but I want to see the markets melt up a little before I buy back into them.
EdMcGon,
Would you consider any short position now?
What about looking at mines that are owned from North American companies in Europe? If they either start or increase production soon their costs will go down and their profit up….Time to run a query!
jamba,
I have to give you credit there. TCK is the first mining company I’ve ever seen that I wouldn’t be scared to death to own. It actually has some decent financials. I have NEVER seen a mining company with decent financials that wasn’t obscenely overpriced. Yet TCK’s P/E is only 9.
But don’t buy this one yet! While it looks good now, copper hasn’t turned around yet. Like Jim said, fear is ruling the market. Until that changes, or at least recedes a little, there is no stock to buy.
Jim and Ed,
I own TC but I am looking at a more diversified miner. I am interested in your opinion on TCK, they have been paying down their debt and just reinstated their divy.
FMMF beat you buy a few days here, looks like a popular read on market tells. $GS could be similar
http://www.fundmymutualfund.com/2010/06/amazing-correlation-between-copper-and.html
Jim,
It is a very nice call. I have a very good Australian friend, who always says that “watch the cooper prices”. That is how he came to a conclusion that in 2009 stocks will go up, that is how he is almost certain we are back to 2008.
Jim,
I’ll second what you just said. As someone who actually enjoys investing in commodities like copper, I wouldn’t touch it until I can be more certain about how the events in China will play out, with the U.S. and EU economies as secondary considerations to this investment.