Special Report: Copper Outlook 2017: Copper Gears Up for a Stronger Year

There are some great benefits to precious metals investments: continued demand, liquidity, hedge against inflation... just to name a few.

When it comes to precious metals, you're bound to be more familiar with gold and silver and their investment benefits. However, other precious metals do exist, and they carry some great advantages.

One metal, in particular, is gearing up for an interesting year in 2017. It's often overlooked because it doesn't share the same spotlight that gold and silver do but don't be fooled. This metal has been one of mankind's most crucial components to development for thousands of years.

I’m talking about copper.

Like I mentioned earlier, copper is a precious metal like gold and silver. However, unlike those two precious metals, copper has more uses and a variety of industries rely on it every day.

It’s the most versatile metal in existence.

Because it is an efficient conductor of electricity, copper is used for heating, plumbing, roofing, computers, cars, mobile phones, air conditioning, adapters, wiring, electrical leads, motors and lighting units, and transformers.

Copper has such a high commercial and industrial importance that you’ll never see its price fall to zero.

Copper has experienced a bear market since 2011. But in the past year, it’s made its way to a stabilized market — good news for investors looking to invest before things start to ramp up.

In the first half of 2017, we'll experience a shift toward a more bullish sentiment for this unique metal.

The opportunity for large gains is coming. So, an investment in copper will be better than waiting around for gold gains.

copperrings

Not to mention copper prices are a lot cheaper.

Copper Projections for 2017

When you invest in a commodity like copper, be aware of the factors that influence commodity prices. This includes political issues, the value of the U.S. dollar, investment fund speculation, and supply and demand of production.

You should pay close attention to the U.S. dollar. Bullish moves for the dollar mean bearish moves for copper and vice versa. Keep this in mind when you consider copper as an investment.

In the past year, copper producers have tried to restore market balance. The best way they did this was to cut 2016 production. However, those cuts weren’t significant enough, and the market is headed toward a surplus for the rest of 2016.

The World Bank (WB) projects that copper prices will start rising to reach $5,400 in 2017; $5,509 in 2018; $5,620 in 2019; and up to $7,000 by 2030.

In addition to that projection, International Copper Study Group (ICSG) reported that the market will be close to a supply and demand balance in 2016 and 2017 and that we can expect China to be the biggest contributor to that growth. Demand will increase 1.8% in 2017.

There’s still a chance for balance in 2017. If all producers were able to coordinate and make a greater effort to cut production by 5%, it would have a profound effect on the market, which would result in a lower supply and create greater demand.

And speaking of demand...

You've heard this before, and you're witnessing it right now... the increased demand for electric vehicles.

Bloomberg reported that sales of electric vehicles will hit 41 million by 2040. The world is shifting toward becoming a “cleaner” and “greener” environment. A huge step toward that begins with electric vehicles.

Electric vehicles require three times more copper than a gasoline-powered car. This is great news for copper! That’s one example of the increased demand we’ll see for copper.

Of course, there are risks involved in the copper market right now. But the benefits of an investment in copper can outweigh the risks.

Let’s look at three companies with a bright outlook for 2017:

3 Copper Stocks for 2017

Southern Copper Corp. (NYSE: SCCO)

Southern Copper Corp. participates in mining, exploring, smelting, and refining copper in Peru, Mexico, Argentina, Chile, and Ecuador.

It has a market cap of over $29 billion and a P/E ratio of 37.55. In the 2016 fiscal year, Southern Copper saw its copper production rise 21% from 2015. This increase is directly related to the expansion of its Buenavista del Cobre mine in Mexico and a new company record.

The company continually works on expanding its copper production, regardless of any supply and demand imbalances. Its copper mine production rose 26% from the second quarter of 2016.

Right now, its debt sits at $5.95 billion, and it’s been at that level for a year. Low debt and low production cost are what to look for when you invest in a copper producer.

BHP Billiton Limited (NYSE: BHP)

Founded in 1851 and headquartered in Melbourne, Australia, BHP Billiton Limited is one of the top producers of commodities like iron ore, metallurgical coal, copper, and uranium. It's not only focused on the metals market but also has interests in oil, gas, and energy coal.

BHP Billiton has a manageable debt-to-equity ratio and has brought in a healthy cash flow — $3.68 billion — despite this past year’s low commodity prices.

It has the largest market cap of any mining company in the world, coming in at $62.34 billion. BHP Billiton is a decent medium or long-term investment.

Freeport-McMoRan Inc. (NYSE: FCX)

Freeport-McMoRan Inc. is the world’s largest publicly traded copper producer. Headquartered in Phoenix, Arizona, the company operates long-lived, geographically diverse assets with ample reserves of copper, gold, molybdenum, cobalt, oil, and natural gas.

The company has a market cap of $19.05 billion. Right now, its debt is at $14.79 billion. Freeport has been selling assets in an aim to reduce its debt. It aims to reduce its net debt to between $8.4 billion and $9.5 billion by the end of 2017.

The company's latest asset sale generated $2 billion that went toward paying off its debt. While the market experiences its current high supply and low demand environment, Freeport continues to cut capital expenditures and suspended its dividend to maintain a strong company.

Conclusion

The copper market has been in a huge slump for the past four years. This has taken a toll on Freeport-McMoRan Inc., along with the other copper producers mentioned in this report. However, that slump will end in 2017, which could result in a rally for copper.

We saw an example of this in the beginning of the year when China cut production capacity of copper, iron ore, steel, and aluminum. Prices soared for these industrial metals because the supply was reduced.

Goldman Sachs said this about copper's outlook for 2017: "Changes in the outlook for copper's supply-demand balances that drove a recent rally in prices support a more 'bullish' environment for the metal..."

Goldman expects prices to rise to $6,200 a tonne over the next six months.

Over the past few years, investors and analysts have been skeptical about copper. But a Trump presidency and his $1 trillion infrastructure plan will increase the demand for this metal.

The recent rise in Chinese imports, which has been responsible for almost 50% of the global copper demand, has analysts shifting their pessimistic forecasts to more optimistic outlooks.

Keep an eye on copper; it's going to have a big year.

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The Wealth Daily Research Team


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