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[This Metal Offers The Best Risk Reward Potential… And Has A Minimum 50% Upside Potential.] By Sven Carlin on November 4, 2016 [pexels-photo-24420] - Copper consumption in relation to GDP per capita is essential for understanding the future demand for the metal. - At higher than $1.5 per pound, the copper cost curve becomes very steep indicating a sharp boom in copper prices when deficits eventually arise. - The five-year investment perspective necessary for copper seems long, but returns of 1,000% are on the table. Introduction Yesterday we discussed iron ore, aluminum, platinum and zinc. Today we will focus in on copper. Copper prices haven’t moved much since the beginning of this year, trading in a range between $2 and $2.2 per ounce. [figure-1-copper-prics] Figure 1: Copper prices. Source: [Infomine]. These prices represent a bottom in copper and an opportunity as the metal has the fundamentals to break out in the next few years in a manner similar to what we’re seeing now with zinc. Copper Fundamentals & Perspective Currently copper is in oversupply. High copper prices in the last 5 years increased brownfield and greenfield mine investments which increased supply above demand levels. This brought about increased copper warehouse levels which have kept copper prices subdued compared to other metals. [figure-2-copper-levels] Figure 2: London Metal Exchange copper warehouse levels. Source: [Infomine]. However, the International Copper Study Group [reports] that copper has been in a deficit of 264,000 tons in 2016 as a result of a 4% global increase in demand for copper. This increase in demand is primarily coming from China as it consumes 45% of global copper supply, and demand from the country grew 9% this year. It’s significant that Asian demand excluding China grew at only 1%. This creates a large future potential positive catalyst for copper assuming other Asian countries reach Chinese development standards. The greatest potential comes from [India], as it is growing at a faster rate than China but has not yet reached Chinese metal demand levels. Those demand levels haven’t yet been reached because the Indian GDP per capita hasn’t reached a level where demand for copper would significantly increase due to increased demand for energy and urbanization. However, demand is increasing and if India continues to grow at current rates, demand for copper will surge as life standards increase. [figure-3-per-capita-consumption] Figure 3: Copper consumption per capita and GDP. Source: [Investment Frontier]. The situation described above is similar to that of iron ore (steel) and aluminum, but the biggest difference with copper is its scarcity. As the easy to find copper has been already mined, miners need to go further and deeper to find economical projects at satisfying grades. Copper grades have been declining for a long time and are expected to decline further. [figure-4-copper-grades] Figure 4: Copper grades. Source: [Rio Tinto]. Lower copper grades mean higher mining costs which will translate into higher copper prices eventually. The current global average cost per mined copper pound is $1.38 which puts a floor under copper prices. By adding the cost of debt issued to develop the mines, we quickly realize that few miners are profitable at levels below $2. [figure-5-cost-curve] Figure 5: Copper 2015 cost curve 2015. Source: [Southern Copper Corporation]. The most significant thing about the chart above is that after $1.5 per pound, the cost curve becomes extremely steep which indicates that we could soon see copper prices above $4 when a larger copper deficit arises. As current increases in copper usage are at [4% per year], those deficits will come given the steepness of the cost curve. Remember that marginal demand is what sets copper prices. [Rake in $86 Million in just 4.5 Years!] I'm about to reveal a simple investing blueprint that a small group of novice traders used to rake in $86 million in just 4.5 years! The best part … this simple blueprint is extremely easy to follow. It doesn’t matter what your background is or how much education you have. This blueprint can be duplicated by just about anyone and could make you an absolute fortune in the stock market starting today. [Click Here To Get The Blueprint!] [Is This Junior Mining Company Your Next 10-Bagger ?] What I’m about to reveal to you is, in my opinion, the trade of the next decade. One Wall Street titan, who is arguably the single greatest investor of all time (hint: not Buffett), has just invested $1.2 billion of his own personal money into this opportunity. [To Get The Urgent Details Click Here.] In the short to mid-term, copper prices are expected to be volatile due to a balance in demand and supply, but sometime in the next few years copper is expected to enter into a supply gap. A normal business downturn in China might postpone this, but the long-term trend is clear and set. [figure-6-copper-supply-demand-million-tons] Figure 6: Copper demand and supply balance. Source: [Mining.com]. In order to cover for the increased demand, analysts expect minimum prices to be above $3.5 in order to put new greenfield projects into motion. World Bank expectations are that copper prices will double in the next decade. [figure-7-world-bank-forecast] Figure 7: World Bank copper price expectations. Source: [World Bank]. The above represents the expected increases in demand based on current trends. However, increased usage of renewable energy and electric cars will further spur demand for copper. [Renewable energy] resources and electric cars require 4 times as much copper as fossil fuel power generation and fossil fueled cars do. Current Perspective The long-term perspective is clear, however there are significant investment risks. Any kind of global slowdown would put more pressure on current prices and postpone the forming of the supply gap, given how volatile commodities are, this would push copper prices below $2 per pound. Also, copper production is expected to increase by 4% per year until 2019 which is in line with expected copper demand growth, which will add to the volatility. Currently, miners are managing to save a lot on costs while increasing production which could further push prices downwards. [Goldman Sachs] forecasted copper prices to go as low as $1.8 per pound as copper enters the eye of the supply storm. It is very unlikely that average quarterly prices will go below $1.8 as this would make more than half of global production unprofitable. Don’t be confused by the 2015 average cash cost per copper pound of $1.38 as this does not include debt. By including debt, many companies break even only at prices above $2. Copper prices of above $3 in the past years have spurred large investments financed by debt which is creating the current oversupply. However, current low copper prices limit new investments which will inevitably lead to a supply gap forming in the future, and thus higher copper prices. Investment Strategy When copper prices will surge is anybody’s guess. The best strategy is to position yourself in low cost miners that are profitable at current prices or into miners that have low cost greenfield mines coming online when the supply gap is about to open around 2020. Investiv has written about one such miner [here]. Any copper investment has to be approached from at least a 4-year perspective as until then, we can’t know where copper prices will go. But the high probability that a copper supply gap will open in the next 5-years gives the opportunity to look at investments that have the possibility to keep the current low cost base and see increased margins in the future. Something similar to what has happened to junior gold miners year to date. Gold prices increased 22% year to date but the [Gold Junior Miners ETF] increased 150%. Given the potential copper has to double in price in the next 5 years, the expected returns from current investments in copper should be at least 500% and possibly 1,000%. For example, if a miner has revenues of $500 million from copper sales at $2 per copper pound and breaks even, if copper prices increase to $3 the miner’s revenues go up 50% to $750 million, but their profits before tax skyrocket to $250 million as their costs remain the same. This is why miners are very responsive to even small changes in metal prices. Knowing that copper might double in the next 5 years means we can expect returns that are certainly more than double in the period. Just doubling your investment in 5 years implies a 15% yearly return, so don’t discard copper just because you might have to wait a little while. [No Comments »] | Filed under: [View all posts in Commodities], [View all posts in Copper], [View all posts in Investiv Daily], [View all posts in Market Forecast] | Tags: No Tags --------------------------------------------------------------- If you are having trouble reading this email, you may [view the online version] This email was sent to {EMAIL} by Investiv, LLC 3400 North Ashton Blvd. | Suite 170 | Lehi | UT | 84043 [Forward to a friend] | [Unsubscribe] Disclaimers Investing is Inherently Risky There are risks inherent in all investments, which may make such investments unsuitable for certain persons. 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