No Need To Worry: Both Copper and China Will Be Just Fine (COPX, FXI, CU, JJC, FCX)
Shaun Connell: Growth in the developing country of China is slowing. This nation is one of the resource consumers in the world and news of the slowdown is worrying some investors, including investors who have exposure to the already volatile ETFs like Copper Miners ETF (NYSEArca:COPX) and iShares FTSE China 25 Index Fund (NYSEArca:FXI), which give equity exposure to copper and Chinese markets.
CNBC recently polled several market experts who believe there is no reason for concern — either for copper specifically or even for China. They say that thermal coal and copper may provide protection against downside risks of slower economic growth in China.
Infrastructure development in China is moving forward at a steady pace, resulting in consistent demand for the base metal. Jonathan Barratt, the CEO of BarrattsBulletin, believes this will continue, despite increases in copper prices. StreamTrading Proprietary Trader Michael Langford anticipates that China will continue to represent 40 percent of global copper demand. In January, these imports by China experienced a 14 percent increase in year-over-year terms.
Mr. Barratt noted that the power sector is particularly dependent on the base metal. Forty-eight percent of the metal is used by this industry and China has earmarked $45 billion for a grid upgrade, he said. During the first half of the year, the CEO expects there will be a temporary supply shortage. Inventories monitored by the London Metal Exchange have declined 25 percent since the year began and are currently at their lowest since July 2009.
Copper prices of $3.70 to $3.75 per pound present a good opportunity for buyers, said Mr. Barratt. The most actively traded futures contract for May delivery increased 0.7 percent on the New York Comex on Thursday, reaching $3.79 per pound. Mr. Barratt holds a long position in the industrial metal that has already experienced a good year.
The Chinese growth data that started all the concern about the metal was released on Friday. Figures reflected a 20-month low in consumer prices during February. Mr. Barratt expects this to provide incentive for additional liquidity injections in the market, supporting Chinese demand for all resources.
Meanwhile, the price of copper has plenty of analysts — including those at Goldman Sachs — increasing their forecasts substantially for the next few months.
Shaun Connell is the editor of Copper Prices Today.