Mining for Money: Copper’s Slide Could Squeeze Silver

Have you seen the price of copper lately? It surged mightily in 2016 … but stalled out this year. Now, it seems to be slip-sliding lower. And it just hit a three-month low on Tuesday.

This goes against conventional wisdom. And it is bearish for silver supply … which means bullish for silver prices.

Whew! That’s a lot to digest. So let me clear things up. I’ll start with a chart of copper’s recent price action.

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The black line is the price of copper. You can see it peaked in February. It has channeled lower ever since.

Now, there is nearby support at $2.51. And maybe that will hold. It’s quite a drop down to the next level of support.

This is happening despite news that should be bullish for copper. For example …

  China’s GDP expanded at a rate of 6.9% in the first quarter. That is better than expected. China is the world’s biggest copper user. China is likely to continue stimulus spending on big projects, which use up a lot of copper.

  The International Monetary Fund raised its forecast for global growth this year to 3.5%. That’s up slightly from January’s forecast. And the IMF sees global manufacturing and trade picking up. Again, that should be bullish for copper.

  President Trump just said that his $1 trillion infrastructure spending bill is “coming fast.” That should also be bullish.

So why is the price of copper going down?

Maybe investors think the Chinese GDP numbers — and political projections and promises — are a bunch of hot air.

Some point the finger at Chinese wealth management product (WMP) investors. Axiom Capital Research says:

“WMP investors bet on trends that are easily predictable. Thus, these investors don’t care if prices are falling or rising; they simply play the momentum.”

Axiom pointed to Chinese WMP investors for the recent sharp decline in iron prices. But it could apply to copper as well.

And yes, this could impact global silver supplies.

See, most silver comes as a byproduct of mining other metals. Only 30% of silver is from primary silver mines. In 2015, 34% of silver came from lead/zinc mining, and 22% came from copper.

And here’s an interesting fact. The 2016 World Silver Survey says the biggest increase in silver production came as a byproduct of copper mining. Copper mining rose 7% in 2015-’16.

If copper prices keep declining, producers will have no incentive to proceed with new mines. They might even shut down some existing mines. Though I think that prices would have to fall a lot for mines to shut down.

Still, the squeeze could be on for silver byproduct production. And that would compound the already-tight global supply I told you about in a previous article, “Silver Miners’ Dirty Little Secret.”

Here’s the chart on global silver production from that previous article …

A Reuters survey says silver production fell 3% last year. It’s likely to keep falling. It takes years — often more than a decade — to bring a new mine online.

Bottom line: Listless copper prices will be one more force squeezing silver supply. And that’s another ingredient for the rocket fuel that will push silver prices higher.

There are some great ways to play the coming silver crunch. Little-known miners, developers and explorers that are poised to reap mountains of profits. Make sure you’re positioned before the next big move.

All the best,

Sean

 

Sean travels far and wide to seek out small-cap values in the natural resource sector. His journey started in New England. As a youth he worked on Mt. Washington, on the cog railroad that runs to the summit.