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Ardent Listener
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 Posted - 05/04/2007 : 17:53:03
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Copper & Silver: every bit as bright as gold.
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Myra Saefong's Commodities Corner
Copper and silver: every bit as bright as gold
By Myra P. Saefong, MarketWatch
Last Update: 8:02 AM ET May 4, 2007
SAN FRANCISCO (MarketWatch) -- As the metals market waits anxiously for gold to return to the $700 level, traders may be best served to keep an eye on copper and silver.
"Keep an eye on silver because it is an industrial metal as opposed to anxiety barometer or monetary metal," said Jon Nadler, an analyst at Kitco Bullion Dealers. "It not only rises with gold in a big bull market, but usually outperforms it."
And as for copper, "the way inventories are going, there is a real possibility that last year's peak price could be exceeded in 2007," said Eric Coffin, a co-editor of hraadvisory.com, which offers publications focused on resource stocks.
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In mid-May of 2006, copper futures reached a record high beyond $4 a pound and silver futures rose to a 23-year high above $15 an ounce.
Both metals could be ready to rally again, with copper a more recent standout -- posting a gain of more than 13% for the month of April.
Copper inventories on the London Metals Exchange are "falling again and the market is back to being very tight," said Coffin.
LME copper supplies fell by 2,200 metric tons to 152,025 on Thursday, the lowest level since Nov. 16 -- and they've dropped almost 30% since hitting a three-year high on Feb. 1 at 216,000 metric tons, according to BaseMetals.com.
"There are new mines on the way, but keep in mind that at current rates, the industry has to supply about 500,000 tonnes of new copper output per year to keep pace -- that is not easy to do," said Coffin.
Meanwhile, silver's market has been in a deficit for more than 15 years, with "considerably more silver ... used in industrial applications than is mined," said Lawrence Roulston, editor of Resource Opportunities.
What's in store
Overall, there really were no fundamental changes in the worldwide copper market to justify the steep drop in copper prices during the second half of last year, Coffin said.
A decline in Chinese copper imports was blamed, but there's a long story behind that.
The imports "fell off substantially to the point where its imports for the first 11 months of 2006 were 36% below the imports for the same period in 2005," said Coffin.
But it's important to point out that China is not only the largest copper consumer, but one of the bigger producers and smelters of the metal, he said.
"China's copper and aluminum smelter industry has been exploding the past few years, with huge increases in capacity and investment levels," Coffin said.
That was a concern because smelters have large energy demands. So, "in order to cool this trend and ensure that it was finished copper leaving the country and ensure domestic supply, China cut the export rebate on refined copper from 13% to 5% in Nov. 2006 and the export tariff on concentrate exports was increased to 10%," he explained.
In effect, prices for refined copper exports dropped 8%, the change was "telegraphed to the industry," and smelters responded by selling as much copper metals as they could before the tariff change and cutting concentrate imports as much as possible -- and relying on local stockpiles, he said.
China drew down the internal stockpiles, is now replacing them and back buying in the open market, Coffin said.
While the U.S. has gone through a quarter of very slow growth, it wasn't as bad as expected, he said.
The U.S. is "still the biggest and most important economy, but the marginal demand, which is what drives prices short term, comes from elsewhere and the rest of the world economy still looks like it will have a strong 2007 and 2008," he said.
For silver, supplies are running out as the market uses above-ground stocks to make up for a deficit in supply vs. demand.
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"Government stocks of silver, which was once used as a currency reserve, are long gone," said Roulston. "Privately-held stocks are now being depleted."
"At some time in the not too distant future, above-ground stocks will run out," he warned. And as that begins to happen, "the speculators will pile on, driving the price through the roof, as happened in 1980, when silver passed $50 an ounce."
It's true, real silver bugs are convinced that these above-ground stocks will disappear soon, and they might be right, but Coffin argued that "we don't pretend to know the true level of above-ground supply and we've never been convinced anyone else knows what it is either."
With the market having no idea when above-ground stocks will run out, investors who simply hold silver bullion, waiting for the big move, "are bound to get bored," said Roulston.
"The ideal situation is to own a silver exploration or development company that is adding value aside from moves in the metal price," he said. "A move in the silver price, when it finally comes, would be an added bonus."
Copper's gain, silver's demise
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For good times to come or bad times to come, now is the time to save your copper or nickel coins.
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Ardent Listener
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Posted - 05/04/2007 : 18:03:10
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Continued from page 1 1 | 2
The price rise for base metals has helped silver supply climb more rapidly than gold, said Coffin.
Most silver does not come from silver mines, he said. It's really produced as a co- or by-product "in a wide variety of metals deposits but especially in lead/zinc mines and large copper porphyries, which can both have significant silver grades," he said.
Only about 30% of silver comes from primary producers, while the other 70% comes from gold or base-metal mines that produce it as a by-product, he said.
That means a boost in copper production could result in a boost in silver output.
"If copper is in hot demand, its production rises -- and so does that of silver as a by-product," said Kitco's Nadler. "Buyer beware."
For the longer term, Coffin doesn't expect to see a problem with producing enough silver to meet demand.
"There are a number of projects in the pipeline that should be significant producers, [and though most of them won't be on stream for a couple of years or more, they should keep the market in balance," he said.
Still, he sees the potential for higher silver prices -- mainly from investment and industrial demand, with the "best potential" for a big move higher coming from another breakdown in the U.S. dollar. He expects that to happen before the year is out.
And investor demand for silver equities is strong, "which means silver companies tend to garner high per-ounce valuations," Coffin said.
"This can be used to advantage if you can find development stories where the market will come to accept a company as a 'producer in waiting' and value it accordingly," he said. "Silvercrest (CA:SVL: news, chart, profile) is nearing that plateau, we think."
And, in terms of large producers, "our long-time choice has been Silver Wheaton (SLW : silver wheaton corp com
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11.99, +0.18, +1.5%) ," he said.
ETF mania
Of course, there's also quite a bit of demand coming from exchange-traded funds.
"As an industrial metal, it is consumed so the imposition of an ETF or two or three of them devours stockpiles," said Julian Phillips, an analyst at SilverForecaster.com.
And "concurrent with the rapid run up in the price of gold this time last year, the introduction of the iShares Silver Trust ETF (SLV : ishares silver trust ishares
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133.83, +0.66, +0.5%) by Barclays pushed silver prices to their highest levels ($15.22 on May 11, 2006) since the Hunt brothers cornered the market back in 1980," said Chris Gaffney, vice president of EverBank World Markets. He was referring to the duo that tried to corner the silver market and pushed silver to $50 an ounce.
The next price objective for silver will be $15, then $25, then $50, said Phillips.
"Physical demand for silver will continue to grow and the ETF will continue to help demand," said Gaffney.
The silver ETF was initially opened with a deposit of just 1.5 million ounces of silver, he said. Now the shares outstanding have grown to just over 13.65 million, representing a deposit of 136.5 million ounces of silver.
Assuming production continued in 2006 at well above the 10-year average, the ETF tied up nearly 15% of the world's silver supply, according to Gaffney.
That ETF is the only one in the U.S. which is actually backed by silver holdings. There are several other products which track silver futures or a specific silver index, but these investments do not increase demand for silver, said Gaffney.
Tom Lydon, president of Global Trends Investments, said PowerShares DB Silver Fund (DBS : powershs db multi sect comm db silver fund
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26.49, +0.18, +0.7%) is also considered a silver ETF, but it invests in silver futures.
Other silver-related investment vehicles include EverBank Metals Select, which offers a way to hold silver for the long term, and the pooled accounts carry no storage fee so there's no erosion of value for long-term holders, said Gaffney.
For copper, there are no ETFs.
Because of the expense of warehousing the metal, "I doubt if an ETF-backed by the actual metal will ever appear," said Gaffney.
Besides, "copper is a 'full-time professionals' market for the users and producers," said John Stafford, editor of Stafford's Investment Strategy Letter. "Silver and gold markets are both the professionals and the public."
And "if there is money to be made on them, I am sure someone will or would have done it," said Brent Cook, an independent exploration analyst who's been in the minerals exploration business for over 20 years.
Lydon said he doesn't know of any copper ETFs in registration either, though there is PowerShares DB Base Metals (DBB : powershs db multi sect comm db base metals
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For good times to come or bad times to come, now is the time to save your copper or nickel coins. |
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Posted - 05/04/2007 : 21:54:27
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"Keep an eye on silver because it is an industrial metal as opposed to anxiety barometer or monetary metal," said Jon Nadler, an analyst at Kitco Bullion Dealers."
HEY! you work at kitco, you should know better. silver is money.
"It not only rises with gold in a big bull market, but usually outperforms it."
He recovered a bit there, it wasn't looking good for a minute.
"Preserving coinage by the pound" |
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Copper & Silver: every bit qas bright as gold.
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