HomeResearchMacroBehind the Scenes on the Base Metals Boom

Behind the Scenes on the Base Metals Boom

Behind the Scenes on the Base Metals Boom

This year has been one for the record books.

From all time highs in the major indices to the Coronavirus meltdown… and then for the market to race back and hit new all-time highs, it’s been quite the ride.

If you felt like your head was spinning this year by some of the moves you were seeing, it was for good reason.

  • 2020 was one of the most volatile years in history for the stock market.

In the next chart you’ll see the number of weekly 5% or greater moves (up or down) for the Dow Jones Industrial Average.

Dow Jones Count of Weeks with 5 percent changeWe have not seen these types of major movements since historic times like the Financial Crisis, the Tech Bubble and the 1987 Black Monday crashes.

Things got so bad this year that the price of oil even went negative.

US Benchmark Oil PriceBut on March 23rd, the virus driven market crash made a major reversal.

The cause of the reversal was that the US Federal Reserve, along with other major central banks, began providing multi-trillion-dollar lifelines to the global economy.

  • In total, the global stimulus response to date is well over $10 trillion.

This massive influx of cash has jolted the markets back to life, racing ahead of where the current economy sits today.

The Back Page Benchmarks

Investors love chasing stories that are on the front page.

But it’s the ones on the back pages that get no love that have the most upside.

These markets and stocks are not as sexy as gold….

Not as sultry as silver…

Not as stimulating as Bitcoin or Ethereum…

Brave New WorldBut industrial metals (or base metals) have been on a tear this year in terms of commodity price increases and how sharp those stocks have risen.

In short, massive supply issues have exposed fragile supply chains.

Try ordering a hot tub, or refrigerator and you’ll quickly find out that lead times have skyrocketed on the back of factory shutdowns in the spring and summer.

Factories are having tough times receiving their raw materials to keep up with the demand in orders (stimulus checks anyone?). The effects are starting to be felt like a large earthquake….

The demand for industrial metals has soared in the second half of the year as Chinese stimulus cash post Coronavirus works itself through the system.

For example, right now supplies of iron ore at major Chinese ports stand at under 3 days.

iron ore days of supply chinaNaturally, this has caused the price of iron ore to shoot up to over $150 per tonne.

iron oreIron ore companies have risen in response…

Fortescue, Australia’s largest pure play iron ore producer is up 124% this year.

Canada’s Labrador Iron Ore is up 45%, while Cleveland Cliffs in the United States is up 65%.

“Forgotten” Metals Making Investors a Fortune

Looking at other major industrial metals like copper, zinc and nickel, inventories are scarce there as well.

It’s caused companies across the spectrum to put up monster returns this year.

  • First Quantum Minerals, one of the world’s largest copper producers and operator of Cobre Panama a world class copper mine is up 67% year to date.
  • Industry titan Freeport-McMoran is up 90% on the year.
  • Mid-tier copper producer Capstone Mining is up over 200%.

We can measure the scarcity using a metric called the “Days of Supply”.

This metric takes total global inventory levels for a commodity and divides it by global consumption. This type of analysis is extremely helpful when identifying future trends for commodity prices.

Let’s start with copper….

Copper has long been an excellent proxy for global economic health. It’s used in everything from washing machines to electric cars.

That’s why copper is often referred to as “Doctor Copper” – because it can diagnose the health of the market.

In our Katusa’s Resource Opportunities portfolio we made money on a copper focused small cap that returned a double from our entry price earlier this year…

We also alerted readers to a spinout company that rose from $1.50 to just over $6.00.

And if you think Bitcoin returns are exciting, again don’t forget the back page stories like Copper…

  • Long-time Katusa subscribers that participated alongside me in a gold deal from a couple of years ago even saw one of their “free” copper positions turn into a 1000% win from our cost base.

One of the things playing a big factor in the rising price of copper (and thus copper stocks) is copper’s days of supply.

The following chart shows the days of supply of copper in inventory…

copper days of supplyYou can see that inventories bulged in early 2020 due to economic lock downs. However, since that time, inventories have not been able to keep pace with demand.

Falling inventories can indicate that copper demand is outstripping production.

We can use this same analysis for Zinc, as you’ll see below…

zinc days of supplyAnd don’t forget nickel…

nickel days of supplyAll told, the trend is clear, that demand for industrial metals has picked up significantly in the back half of 2020.

  • When demand picks up and supply can’t react fast enough, prices shoot up.

Below is a chart which shows the year-to-date performance of each major metal. To no one’s surprise, with less than 3 days of iron ore in Chinese ports, prices for Iron ore have shot to the moon and it is the best performing metal this year.

market metals year to date performanceAre Industrial Metals on the Cusp of a Boom Higher?

I sound like a broken record, but I think next year is going to be another volatile year.

My portfolio is prepared for what I see as a coming bull market in commodities that could be bigger than anything we’ve ever seen… given how much money world governments have injected into the system.

However…

There are many uncertainties around the world these days and many of them can lead to another sharp correction in the global markets.

And as alligator investors, you need to be prepared with capital.

Remember the ABC rule, Always Be Cashed-up

In my December issue to subscribers, I laid out my plan and identified 6 stocks across multiple commodities which I feel are poised to outperform over the next 2 years.

We also all participated in a private placement, run by an exceptional management team in the gold space.

I millions into the deal at the same price and terms, and I didn’t take a penny in fees. Subscribers all over the world were able to get the same price and terms alongside me.

It’s catching the industry by storm.

But that was then, what’s coming next?

My team and I have uncovered several new opportunities that we are working day and night to finalize for ourselves and subscribers.

If you’d like to learn more, click here to find out what Katusa’s Resource Opportunities is all about.

I am excited for 2021 and want to make it my best year yet.

Regards,

Marin

PRINT