A Material World

09/03/2019 5:00 am EST

Focus: COMMODITIES

Jim Powell

Principal Analyst, Global Changes & Opportunities

There are opposing forces at work in the market for technology metals that are creating profitable opportunities for knowledgeable investors, notes international expert Jim Powell, editor of Global Changes & Opportunities Report.

On the positive side, demand currently exceeds the supply of all the critical metals — and should continue to do so for many years. That imbalance would ordinarily push up prices of the metals and the stocks of their leading producers.

However, investors are looking at the global trade war — and the uncertain global economic outlook — and worry that demand for the metals will soon fall. Those worries are leading to lower prices in the tech metal industry.

I urge readers to take a longer-term view of the demand for technology metals. The global march towards cleaner, more efficient energy production and transportation is unstoppable — which will push prices up significantly for copper, cobalt, lithium, and nickel.

Viewed from that perspective, the leading metal producers should pay handsome rewards to long-term investors who buy them when they are cheap.

I especially like the outlook for Freeport McMoRan (FCX) the world’s leading producer of copper — a metal that’s used in every tech device that produces or uses electricity.

Electric cars, solar panels, wind generators, the smart grid, high capacity batteries, power plants, and so on, use huge amounts of copper. So does the construction industry. I don’t think long-term investors will do anything but profit from Freeport, especially from today’s lower price.

The long-term outlook for nickel is also excellent. The metal is up 30% since January due largely to the decision by the Indonesian government to ban the export of unprocessed ore. By 2021, this major producer of nickel is expected to use most of the metal it mines to make high-grade stainless steel.

The nickel pinch will be good news for Glencore (GLNCY) that’s also a leading producer of the metal — plus copper and cobalt. All three metals are needed in large quantities to make high-capacity batteries for electric cars and countless devices that most of us use everyday.

There is one caution about Glencore. The company has significant operations in central Africa — including the Democratic Republic of Congo — an unstable region ruled by some very nasty and corrupt people.

However, all the leaders are addicted to the taxes and payoffs that Glencore produces — and are unlikely to do anything that would reduce them.

Glencore’s stock dropped sharply in late April when worries increased about the slowing pace of the global economy. The decline gives long-term investors a chance to acquire a low-cost position in what should become a very profitable stock.

Lastly, there is the exceptional performance of Rio Tinto PLC (RIO) that is bucking the metal industry downtrend. The stock is up some 25% for us due largely to soaring prices for iron ore that is up 67% so far this year.

Rio is booming because its leading competitor Vale (VALE) suffered two catastrophic failures of its waste containment dams in Brazil that killed hundreds of people. The company was forced to severely reduce the production of iron ore — which left Rio Tinto in the catbird’s seat in the iron ore industry.

I think Rio Tinto has further to climb – but it must be considered a speculation. Conservative investors who are willing to be patient for their profits should stick with Freeport McMoRan and Glencore.

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