Copper prices continued to rise in 2010, although not nearly as much as the base metal's spectacular move in 2009 when prices doubled to $7,000 a metric ton. Morgan Stanley believes prices in 2011 will average $7,900 a metric ton, up from $7,300 this past year, as strong demand coupled with low inventories and ongoing supply issues point to another banner year. Let's look at the copper producers who benefited most from an ongoing commodities boom.
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Global Economic Recovery
The primary user of copper is the construction industry. As emerging markets like Brazil, Russia, India and China continued building at a record rate, signs grew stronger that the global economic recovery may indeed be taking hold. If you believed in 2010 that gold or silver prices were going to rise, you could have bought an exchange-traded fund like the streetTracks Gold Shares ETF (NYSE:GLD) or the iShares Silver Trust Fund (NYSE:SLV).
New ETF Expected To Hold Copper
However, if you felt the same about copper, you were out of luck. That's supposed to change in 2011, as JPMorgan Chase (NYSE:JPM) is set to introduce an ETF that will hold the physical material. That's good news for those who want to own copper itself and not a bunch of stocks. (For more, see A Gold Bug's ETF Plays.)
Outperforms S&P 500
Copper-related stocks performed almost four times better than the S&P 500 in 2010. Leading the way was Freeport-McMoran (NYSE:FCX), up almost 50% thanks to a very profitable year in which cash flow was so strong, it increased its regular dividend from $1.20 annually to $2. The company also paid a special dividend of $1 per share in December and will split its stock two-for-one in early 2011. If that's not enough, analysts expect that its earnings per share will increase 43% this year and 17% in 2011. Another stock with a strong performance in 2010 is Southern Copper (NYSE:SCCO), whose earnings analysts expect will increase 74% in 2010 and 66% in 2011. (For more, see Taking A Shine To Copper.)
If copper is your thing, Southern Copper has 122 billion pounds of copper reserves. According to Southern, those reserves are greater than any other miner's. I say bring on the demand.
If you would rather own a basket of stocks instead of individual companies, you could have bought the iShares Dow Jones US Basic Materials Sector Index Fund (NYSE:IYM), which owns Freeport-McMoran and Newmont Mining (NYSE:NEM), but it wouldn't be a pure play. Perhaps copper's stellar performance in the past couple of years will convince one of the ETF specialists to create a specialty copper fund in 2011.
According to CRU Group, a leading metals and mining consultant, China will account for almost 50% of annual copper sales by 2020. With rosy predictions like these, it's no wonder 2010 was another good year for copper producers. (For more, see Is The Copper Supercycle Intact?)
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