Copper price and the next boom in Global Economy!

Next boom in Global Economy!

2016 has been a difficult year for many investors but amid the gloom there have been significant changes in global economies and outlook.  Personally, I have always been a student of metal commodities with special emphasis on copper and precious metals.  The two metal groups are vastly different:  copper is a fundamental and essential component of most human activity, whereas precious metals, in addition to being essential in many industrial applications, underpin commerce and provide a measure of security not available from currencies.  Worldwide, gold and silver are recognized as a “safe haven” in times of crisis and inflation and large quantities of both are constantly being shifted across continents and oceans.

Doubleview, an emerging junior resource exploration company, headquartered in Vancouver, with copper and gold properties in British Columbia, recognizes that its success will, at a future time, depend upon its ability to join the ranks of metal producers.  In preparation for achieving that still-distant goal, our team constantly reviews commodity markets, the statistics of mine production, the ability of existing and emerging mines to fulfill future demand, and opportunities to add green- and brown-field properties of merit to its portfolio. Additionally, the Company’s Hat gold-copper alkalic porphyry deposit is being advanced by drilling and technical surveys.

Obviously the price of copper is re-aligned daily and even hourly to retain its value and reflect current events.  Commodity traders with huge and complex information networks and trading platforms, including stockpile warehouses, ensure the supply of metals in support of the ever-fluid business cycle.  Their ability to do so restrains substitution and diversion into aluminum, a metal that for most purposes is similar but inferior.

Most people will be aware of the remarkable surge in the price of copper following an abrupt turnaround that ended a two year long period of stagnation, fewer however will have noticed the inverse movement of the price of gold.  Since October 24th the copper price has risen by 28%, from $2.09 to $2.68 (see Figure 2), breathing life into the value of all producing companies and resulting in renewed interest in exploration companies with realistic prospects and in copper producing companies that were struggling to maintain their operations but resisted closure in fear of losing loyal and talented employees.  The apparent resurgence was due to the improved global economic outlook, shrinking supply of new production coming on line, corporate moves to reduce or eliminate marginal operations, and recognition of imminent exhaustion of some of the aging mines.  Many commodity traders had failed to recognize the evolution of demand from surplus to deficit and bravely but foolishly oversold or shorted the supply and had to scramble to minimize their exposure or losses, thereby fueling the price escalation. 

Currently, copper is on the up side of its long overdue cyclic trend and increasingly is grabbing the attention of consumers and commodity traders.  The one year copper and gold chart shown below illustrates the shift in focus commodity traders’ focus and trading fundamentals.

Figure 1 : Copper – Gold Trade relationship (Click to enlarge)

The charts show the trading patterns of gold and copper:  gold as a value-sheltering commodity and copper as an index of the global economy.  Even as the gold price rose in a period of stagnant interest rates that lessened the penalty for holding a non-interest bearing but safe investment, copper stubbornly stayed within a tight trading range.  Predictions of perceived but still unrealized, perhaps soon-to-come, higher interest rates as the global economy turns positive, has created extra uncertainty and erosion of the gold price.  Buoyed by shrinking supplies and increased demand, copper has at last broken free of its $2.05 to $2.20 per pound trading range and appears to be setting a new base price in the vicinity of $2.50 to $2.65 per pound.  There is no indication that the supply deficit has been addressed:  few new deposits are being developed and many existing copper mines are faced with unavoidable higher costs and lower ore grades.  The consequences of necessary but unfortunate solutions forced upon producers, including having to disrupt their orderly production schedules in order to focus on ores that are mineable at a breakeven or better basis, have longer term    negative implications:  some mines will slowly re-open, others may never recover.  The looming production shortages may be with us for many years.   

The lower prices and lesser demand in the past few years, and lack of new mines and deposits around the world has created a vacuum to be felt yet in the world stage. Adding to the mix, there are mines in Africa and South America depleting in ore content and running low at the present time.

On the other side the $2.5/lb Copper seems to be the mod and average point for porphyry deposits as a major supplier to the Copper market. It is predictable that the long term lower prices will create a major momentum in a turnaround in Copper price and it looks like that the momentum is coming.

The harmonic inverse fluctuation in gold and copper demand and prices, triggered in early October/mid-November, has upset the fragile trading patterns of both.  This  Economy Cycle-driven activity foreshadows even higher copper prices as the cycles are typically measured in years, not months.

Figure 2: Copper Price Break through point (Click to enlarge)

 

For now, copper is enjoying high demand from consumers and traders, both of whom are anxious to lock in their supplies and re-build stockpiles ahead of the next price jump.     

Longtime lower prices for Copper, depleting in Copper Ore around the world and lack of new mines in production in conjunction with higher demand is felt in both Gold and Copper trading volume since October 2016.

Figure 3: Next Copper Price Point, February 2017

Chartwise Copper Cyclic Volume Placement as shown in the accompanying charts, is at its lowest since early 2013.  The so-called Price adjustment Points, tied to accounting necessities, continue to rise:  the outlook for producers has turned, in tune with customer confidence, and the doom and gloom that infected the world economy appears to be fading fast.  

Doubleview’s advisers and technical team are watching the trends and are delighted to observe this upward momentum in copper prices.  It gives support to the optimism that sustained them through recent tough times. The now-completed program of exploration drilling at the Hat Property has yielded much new and vital data:  core samples will be processed in coming weeks and the results will be shared with you when received and verified.  The Company is proud to announce that the drilling program was completed with peak efficiency, record low overall costs, and an enviable safety performance without any accidents or incidents.  Our employees and contractors deserve special recognition for their endurance under particularly severe winter conditions.