All feel we've seen bottom. Booya!

The CEO of CAT - Doug Oberhelman  made some very salient points about mining.  Even specifically mentions copper.  Listen carefully.    

 http://www.cnbc.com/id/100657106

By Chanyaporn Chanjaroen - Apr 22, 2013 

Goldman Sachs Group Inc. said that the selloff in copper was “overdone” too and it remains bullish on the metal at a lower price.

The bank cut its three-month estimate to $7,500 a metric ton from $8,000, lowered its six-month prediction to $8,000 from $9,000, and the 12-month forecast fell to $7,000 from $8,000, Goldman analysts including London-based Max Layton and Hong Kong-based Roger Yuan said in a report dated today. Copper for three-month delivery traded at $6,905 today.

The metal has lost 13 percent this year and slumped into a bear market as Europe struggled with its debt crisis and growth slowed in China, the biggest metals consumer. Europe and China account for about 60 percent of world consumption. Inventories tracked by the London Metal Exchange almost doubled in 2013.

The forecasts have been downgraded “to acknowledge the increasing willingness of the market to price future surplus ahead of time” and the risks to growth in the broader emerging market, the report said. While prices have suffered on concerns China’s economy may slow, the bank said the country’s “underlying cyclical growth is likely stronger than the headline figures suggest.”

Copper in warehouses monitored by the Shanghai Futures Exchange is being drawn down, it said. The bank estimated bonded stockpiles at 510,000 tons from 715,000 tons in early March and noted that futures in Shanghai are in backwardation.

 

Ignore the Copper Bears… By Matt Badiali, editor, S&A Resource Report

 
 

 About once per year, the media – and investment analysts who should know better – try to scare the heck out of commodity investors with claims that "copper inventories are soaring."

The thinking is that if copper inventories are rising and near all-time highs, then copper is headed lower… and so are copper-mining stocks.

Today, I'll show you why those claims are wrong. And I'll show you why, counter intuitively, high copper inventories are not a reason to sell your copper miners.

If anything, high copper inventories are a reason to buy copper miners…
When supply hits its peak, the wrong-headed pundits say copper prices must fall. But as we can see from the chart below, by the time supply peaks, the copper price is nearly at its bottom.

In the chart below, the black line represents copper stockpiles stored in the London Metals Exchange (LME) warehousing system. This is the most widely watched level of copper inventories in the world. You can see that this level regularly booms and busts. The blue line in the chart represents the price of copper.

It sounds odd to most folks that high copper inventory levels tend to coincide with price bottoms. But that's the nature of the markets. By the time the mainstream press reports on something, chances are good prices will have already factored in the story.

That's why it doesn't make sense to trade in the direction of news headlines. It makes sense to study the numbers and facts.

In this case, the facts are telling us to ignore news articles that cite "experts" who tell you to avoid copper and copper stocks because inventory levels are high. History shows that these high inventory levels tend to mark buying opportunities, not selling opportunities. The one time in 2011 that inventories were high and copper prices declined, the decline was shallow.

This is why I encourage readers to hold on to shares of copper producers like Southern Copper (SCCO) and Freeport-McMoRan (FCX). Yes, inventories are high… and the news sounds negative. But when you understand the real story, you realize it's not an excuse to sell copper.

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Copper

 

Fears of a China slowdown (its was a hard landing last year) has overshadowed all commodities in the last 12 months.  A year ago there was talk of a China hard landing with a rapid deterioration in economic activity.  Now the talk is of government policy to slow down a rapidly overheating housing sector. 

 

China is undergoing its next stage of economic development and it will have an impact of the global commodity markets, as China is the marginal buyer of most commodities in the global supply chain.  The transition from fixed asset investment to a more consumer demand driven economy is not going to be smooth or without bumps.  There will be a lot of government involvement in a planned/controlled economy in China.  The transition should be negative for iron ore – see the iron ore short idea on VIC.  However, I expect it to be positive for oil and copper.  Using Japan and Korea, as models for China to develop into a consumer driven economy would require a 5-fold increase in per capita copper consumption.  Now I don’t expect China on a per capita level to become Japan or Korea overnight.  But the path to a consumer demand driven society is very copper intensive – much more than iron ore or steel. 

 

Add in US housing recovering and eventual European growth the demand picture for copper in the medium and long term is positive.

 

The supply for copper long term is a messy.  The large scale current copper mines have extracted most of their easy copper and are entering more complicated and difficult extraction of ore bodies.

 

New large-scale projects like Oyu Tolgoi in Mongolia (RIO/TRQ) are seriously risked by resource nationalism.  Large-scale prospects in safe political jurisdictions like the Pebble Project (NAK) have serious environmental issues limiting development.  As the mining majors scale back projects with new CEOs – the old ones were fired for poor deals/large projects  - the supply of copper should be tight. 

 

A copper price between $3-$3.50 a pound allows FCX to take debt from 16 bil. to under 2 bil. by 2016.   This is where copper futures are currently trading.  My long term view is copper realized prices will be higher than futures as global economic growth (nominal) averages 3-5 percent, US housing picks up and China transitions (with a lot of government involvement) to a more consumer demand centric economy (more growth in per capita consumption of copper and less growth in per capita consumption of steel)