Plenty of press has been reserved for gold during this recession. As it turns out, copper has been the commodity to watch as of late. There are some indications that the recovery of copper prices may prove to be a long-term trend, but investors can anticipate some volatility in the short-term.
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This metal, which is commonly used in making pipes and wire, fell off of a cliff last fall along with the broader crash in commodity prices. Today, the price of copper still sits more than 45% below its peak reached in July. Fortunately for copper investors, this commodity has begun to show some signs of life. (For more, see An Overview Of Commodities Trading.)
On April 13, 2009, stockpiles of copper monitored by the London Metal Exchange fell 2.4%, for the largest single-day drop since October. This continued downward trend in the supply of copper, which began earlier this year, has been one of the leading factors behind the 57% rise in the price of copper in 2009.
Another key factor has been speculation that demand from China, the world's largest purchaser of copper, will soon begin to pick up. In March, China imported a record 374,957 metric tons of unwrought and semi-finished copper. This record for China eclipsed its previous record, set one month prior, by 14%.
Although the jury is out as to when global demand will really begin to pick up for copper, investors looking to gain exposure to the metal have a couple of options. The iPath Dow Jones-AIG Copper Total Return Sub-Index ETN (NYSE: JJC) is an exchange traded note that is designed to track the performance of copper contracts. The downside to this ETN is that it averages only 50,000 shares traded per day, which can lead to wide bid-ask spread.
Investors might be better served by investing in copper mining companies as opposed to JJC. BHP Billiton (NYSE: BHP), Freeport-McMoRan Copper & Gold (NYSE: FCX), Rio Tinto (NYSE: RTP), Southern Copper (NYSE: PCU) and Teck Cominco (NYSE: TCK) are among the more prominent names that have exposure to copper in their mining operations and stand to benefit from rising copper prices.
Tread with Caution
Any recovery for these copper names is likely to come in fits and starts. Industry experts are not expecting demand for copper in China to be overwhelming in 2009, and some have warned that copper may soon retrace its recent gains.
Earlier this week, Tom Albanese, the CEO of Rio Tinto, told shareholders that he only expects Chinese metal demand to grow at a "low single-digit" rate this year. Deutsche Bank analyst, Michael Lewis, has even warned that Chinese copper imports could collapse in the coming months due to seasonal factors.
The Bottom Line
Copper is still an attractive investment for the long-term, given diminishing inventories and the prospects of a boost in demand from China at some point in the future. This metal also appears to have more room to rebound than gold, which has held steady throughout the market downturn. However, the road to recovery for copper is likely to be anything but smooth. Investors looking to take a long-term position in this commodity should be prepared to stomach the volatility that will accompany such an investment. (For more timely commentary on stocks in this sector, see Metals And Miners Dig Up Ideal Conditions.)