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Realities of the Metals Markets
by Lawrence Roulston

While investors fret over the state of the U.S. economy, metals keep climbing

Copper and tin both reached all-time record highs this week. A major mining company is buying yet another junior company to get its hands on a development project. The largest mining company in the world is reviving its plans to buy the third largest metals company. A major Swiss financial firm forecast that copper could rise by 50% from the current record high level.

There is a growing mountain of evidence that metals are in a long term bull market, driven by economic strength in the developing world. Yet, investors remain blinded by the situation in the U.S., fearful that the slowdown there will impact the rest of the world.

In reality, in spite of the sluggish U.S. economy, copper demand is forecast to continue to grow by 4% a year for at least the next decade. That implies that the mining industry will need to build mines capable of delivering an additional 1.4 billion pounds of copper a year. That is equivalent to four big new mines each and every year. Plus… another four big mines are required every year to replace mines that are being depleted. It will be a monumental task for the industry to pull off that level of expansion. Hence, the forecast for a 50% bump in the copper price. That forecast may be overly bullish, but it certainly shows that at least one very well placed financial group sees the realities in the metals markets.

I use copper as an example, but the same situation applies to the other metals. Demand is increasing at a rate faster than the mining industry can increase production. At some time in the not too distant future, it will become evident to investors that metal prices will remain at high levels for many years. The big question is when that thinking will become reality.

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