Over the weekend, Barrons published an article of the current state of the copper markets. Nothing new in this Barrons article but a reminder of how quickly sentiment to copper is changing and at a time when LME inventories (NLSCA) remains at 6 year lows and China Copper inventories (WPBCRSCI) continue to plummet.
We continue to push Freeport (mentioned in the article.) Barrons goes on to discuss how investors are piling back in. Copper prices rose 14% from their March lows, at $3.2690 a pound. Other industrial metals are rallying, as well: Nickel is up some 40% since January, and aluminum has risen 8% (see above). Barrons notes how Copper prices are headed higher, with investors betting that ramped-up manufacturing in the U.S. and China will spur demand for the industrial metal.
“We’re on the precipice of another cycle, one where the juggernaut of global growth will be the U.S.,” says Michael Mullaney, chief investment officer at Boston-based Fiduciary Trust, which manages $11.4 billion in assets. We couldn’t agree more. For months we’ve been highlighting that US growth data, while not all that impressive continues to demonstrate better fundamentals than other large developed/developing markets and recent economic data out of Europe and Asia (Weak French and German data, dismal Japanese machinery orders and disappointing China export numbers) have just further reinforced out belief. However, we continue to remain biased towards the US with respect to incremental driver of revenues for large multinational corporate champions. We believe the US will continue to lead the global recovery. Names we continue to like in our GDP basket are AIG, BHI, BA, CAT, CMCSA, CMI, DE, DOW, FCX, AA, DD, GE, GSK, HON, INTC, JNJ, JNPR, MSFT, MON, ORCL, PCAR, PH, UPS, WHR
Lastly, with FCX coming to a resolution with the Indonesian government with respect to their Grasberg mine allowing for the export of copper concentrate, we believe a major overhang is removed from the stock. Add in their large oil and gas acquisitions beginning to bear fruit as FCX expects a doubling of production over the next 5 years from their GOM assets that should increase FCF as well as divestures of noncore assets to meet their debt goal of ~$12B by 2016 should lay the ground work for future dividend increases and share repo. Icing on the cake would be a robust US growth environment but our belief in FCX is not predicated on that and believe robust growth will only propel shares higher.
