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This Looming Commodity Shortage Could Mean Big Gains

By Brian Weepie, analyst, Stansberry Resource Report
Friday, November 21, 2014

There's a massive deficit looming in the copper industry.
 
And contrarian investors will soon have a chance to make big profits.
 
Let me explain...
 
Copper prices took a beating over the last three and a half years.
 
For example, shares of giant copper producer Southern Copper plummeted 38% from their December 2010 high.
 
But the selloff might soon be over...
 
You see, global copper consumption has still increased – if slowly – over the past few years.
 
Year
2006
2007
2008
2009
2010
2011
2012
2013
Volume*
17.0
18.3
18.1
18.2
19.4
20.3
20.5
20.9
Change
 
+8%
-1%
+1%
+7%
+5%
+1%
+2%
 Source: Statista.com
* in million metric tons

Freeport-McMoRan (NYSE: FCX), the world's second-largest copper producer, expects demand to continue to increase 3%-4% annually over the next five years.
 
The strong copper consumption forecast is largely dependent on the health of the Chinese economy.
 
China is the world's largest copper consumer. In 2006, it imported 3.7 million metric tons of raw copper (ore and concentrate). In 2013, it imported a massive 10.1 million metric tons. That's a 173% increase. Through October 2014, China's imports were 9.5 million metric tons. If it continues at that pace for the rest of the year, it should import 11.4 million metric tons by the end of the year... up 13% from last year.
 
New investment in power networks and demand from rail projects are driving the increase in China's copper consumption. Reuters reports that the country's refined copper demand will increase 6% in 2015. Chile also expects copper demand from China to increase 9% this year.
 
If the Chinese economy hits the wall – like many expect – copper consumption could sink. But if it continues to grow, copper producers will have a hard time keeping up with demand. And as we've shown you in these pages before, China's commodity consumption doesn't appear to be slowing down.
 
Based on current economic growth rates, industry analyst Wood Mackenzie reports that we'll need an additional 7.3 million metric tons of annual copper supply by 2024.
 
Yet the total production of the world's 10 largest copper mines is only 4.5 million metric tons per year.
 
Mine
Producer
Location
Production as of 2013
(in metric tons)
Escondida
BHP Billiton
Chile
1,100,000
El Teniente
Codelco
Chile
450,000
Antamina
BHP Billiton/Xstrata
Peru
447,000
Grasberg
Freeport
Indonesia
421,818
Los Bronces
Anglo American
Chile
416,300
Los Pelambres
Antofagasta
Chile
405,300
Radomiro Tomic
Codelco
Chile
379,600
Chuquicamata
Codelco
Chile
356,000*
Morenci Plant
Freeport
USA
301,818
Cerro Verde
Freeport
Peru
253,636
Source: Mining-Technology.com
*2012 data

In short, we're about to see a massive deficit in copper.
 
That's why copper producers have been investing billions to increase their capacity, despite falling profits.
 
Freeport-McMoRan plans to produce more than 2.2 million metric tons per year by 2015. That's a huge 37% increase from 2012.
 
But the increase in production and some new giant mines coming online – like Turquoise Hill's massive Oyu Tolgoi mine in Mongolia – likely still won't be enough.
 
And more demand than supply will drive copper prices higher.
 
Copper prices are still looking for a bottom today, as you can see in the chart below:
 
 
But over the next six to 12 months, once the market realizes we're about to have a shortage of copper, I expect to see the beginning of an uptrend. And once this happens, copper miners are going to soar.
 
We'll be monitoring the copper trend closely in Growth Stock Wire. And we'll let you know when it's time to buy.
 
Good investing,
 
Brian Weepie




Further Reading:

On Monday, Matt Badiali told readers about another commodity set to boom – uranium. "Eventually, prices HAVE to head higher," he writes. "And when they do, shares of uranium stocks will soar." Get all the details here.
 
When things get "bad" for an asset, most people can't stand the idea of owning it. So you'll often see extreme negative sentiment before a "bad to less bad" rally. Steve Sjuggerud has been using this idea for years to spot low-risk, high-reward investment opportunities. Learn how to profit using investor sentiment in this interview with Steve.

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