Britain is doing something it didn’t do before the Second World War. It’s preparing for war.
Leaders are worried about another North Korean missile test. One that could trigger a military response by the US.
That could kick off a major war.
‘A full-blown war on the Korean Peninsula will be horrific by any stretch of the imagination,’ US Army Chief of Staff General Mark Milley told reporters on Monday.
US President Donald Trump has sounded the alarm bells. He tweeted earlier this week: ‘Our country has been unsuccessfully dealing with North Korea for 25 years, giving billions of dollars & getting nothing. Policy didn’t work.’
The question is: What happens next? Hopefully not the worst-case scenario.
British officials aren’t taking any risks. They’ve started to draw up military plans. ‘We have plenty of ships to send…the Type-45 destroyers, the Type-23 frigates. Britain’s new aircraft carrier could be pressed into service early if things turn south,’ a senior Whitehall source told The Daily Mail.
If war does break out, we’re likely to see more ships, planes and trucks built. That’s not ‘good news’ in the grand scheme of things. But copper should benefit from it.
Copper is arguably more important than any other metal when it comes to military applications. It’s a vital component in ammunition, ships, tanks, helicopters, rifles and thousands of other military supplies.
That means it should outperform when global conflict heats up.
Geopolitical risks have driven — and will continue to drive — the price in the short term. To put this into perspective, check out the chart below. It shows the copper price over the last century.
Source: CRU Analysis
[Click to enlarge]
You’ll note that copper boomed during wartime. And with global tensions rising by the day, there’s a good chance the world’s heading towards another war. North Korea and the Middle East are the likely hotspots for a full-scale war. If war does break out, the copper bull will probably come back with a vengeance.
Now, war is obviously not something I want. But if major conflict is coming, it’s best to prepare yourself now.
The US is certainly doing that, as Reuters reported on 18 September:
‘The U.S. Senate passed its version of a $700 billion defense policy bill, backing President Donald Trump’s call for a bigger, stronger military but setting the stage for a battle over government spending levels later this year.
‘The Senate bill provides about $640 billion for the Pentagon’s main operations, such as buying weapons and paying the troops, and some $60 billion to fund the conflicts in Afghanistan, Iraq, Syria and elsewhere.’
It’s clear that copper demand is likely to increase thanks to the bill.
The problems don’t end here
However, copper has experienced a supply-crunch all year. There have been multiple strikes at the giant Escondida mine in Chile (owned by BHP Billiton Ltd [ASX:BHP]). There have also been government relations problems and strikes at the Grasberg mine — the world’s third largest copper mine — in Indonesia.
Indonesian President Joko Widodo wants a majority government stake in the Grasberg mine. The deal, drafted in August, grants Indonesia a 51% ownership in the massive copper and gold mine and makes Freeport build smelters in the country. The tentative agreement was meant to put an end to mounting public rage over foreign ownership of the mine. But that hasn’t had the desired effect yet.
Rather, it’s merely added to the supply curbs.
Take a look at this chart:
Source: Commonwealth Bank
[Click to enlarge]
The chart shows the supply squeezes as a percentage of global copper supply dating back to 2004. We are actually well below the historical average of disruptions this year. In other words, the copper price has seen a tremendous rally on the back of a small supply-crunch. That speaks volumes for the demand story.
This copper story isn’t going away
To make matters worse for copper supply, China has started cleaning up its environment. The Australian reported early last month:
‘…China’s stricter environmental measures are now rippling through to copper, where a proposed scrap import ban has helped push prices to fresh three-year highs.
‘The proposed restrictions on copper scrap embedded in other materials such as engines, as Beijing moves to reduce waste, has driven more buying of physical metal derivatives, and already restricted physical supply.
‘BHP’s head of minerals marketing, Vicky Binns, said China’s moves to clean up industry and improve air quality had been more effective than expected.
‘“With environmental supervision responsibility moving from the local authorities to the central government, there has been much stronger policy enforcement,” Ms Binns told The Australian yesterday. “The adherence to it has been more rigorous than the market expected — it seems China is prioritising it on at least the same level as economic growth.”’
The crackdown has continued. And if China is serious about cleaning up the environment, bigger production cuts could come soon. That could have a massive impact on future prices. As it stands, London Metal Exchange (LME) inventories are heading back towards five-year lows. You can see this on the chart below.
[Click to enlarge]
This is a major problem. If war breaks out, copper demand will likely rise. Yet copper producers — especially those in China — are experiencing problems and cutting production at record rates.
Take note: The copper price has boomed this year for a reason. And that’s why copper, and copper explorers, should give you the best chance of big returns today. That’s why I believe you should consider buying copper stocks today. I’ve recommended a couple in Resource Speculator, my advisory service. One is trading 201% above the buy-in price. Another has doubled over the past few weeks.
Don’t miss out on the next stock to surge higher.
For more details, go here.
Editor, Resource Speculator