A single move by one of the world's most powerful banks could soon create the greatest shift in copper prices in history.
This one "Big Move" could create massive shortages of the highly valuable industrial metal...and send the price of copper through the stratosphere.
This situation is evolving as we speak. The SEC has a hand in it. And resource analysts and investors all over the world are following it closely.
In fact, two of the world's biggest copper producers are so concerned about copper shortages - and skyrocketing prices - they've recently filed a lawsuit to prevent the bank from making its "Big Move. "
But there is little chance this particular bank can be stopped, as you'll see.
So, at the same time the move is causing havoc for copper producers, it's creating a massive opportunity for investors.
Make no mistake: We could be on the brink of the biggest copper investing opportunity ever seen.
The key for investors now is to time their own "big move" to copper when it's most advantageous.
Let me explain...
The situation fast unfolding right now actually began two years ago.
That's when JP Morgan Chase, the big bank we're talking about here, asked the Securities and Exchange Commission (SEC) to approve the launch of a U.S. copper exchange-traded fund (ETF)... one backed by physical copper.
This request was significant: An approval would create the first ever U.S. copper ETF backed by the metal itself.
This ETF would give investors a clear path to accessing and/or offloading copper inventory and associated price-risk.
So why would the SEC or anyone object to that?
Because, although many precious metal ETFs on the market (such as the SPDR Gold Trust) are backed by the physical metal, there's little doubt these types of ETFs can have a significant impact on the price of the commodity.
Especially if the ETF is taking abundant quantities of the commodity off the market.
And when it comes to copper, JP Morgan Chase ETF plans to store a boatload.
According to their filing with the SEC, the Morgan trust plans to hold 61,800 metric tons of the red metal in warehouses worldwide.
That's equivalent to a whopping 27% of the copper held in London Metal Exchange's global network of warehouses.
No wonder JPMorgan's "Big Move" has created such a vicious backlash among manufacturers, supplies and producers of the red metal.
In fact, a virtual consortium of copper users and producers joined forces after JPMorgan's filing to block their "Big Move." And for the last two years that's exactly what they've done.
They argued such an ETF would upset the supply and demand balance in the copper market. They also went as far to warn the SEC that these ETFs would "grossly and artificially inflate prices" and "wreck havoc on the U.S. and global economy."
A recent complaint by a New York law firm on behalf of copper merchants and fabricators argued that JPMorgan's ETF would remove as much as 30 percent of the copper available for immediate delivery.
This, it was claimed, would create an artificial squeeze... and send copper prices through the roof.
The fund will "obviously drive up the price of copper available for immediate delivery and create shortages of supply," the complaint said.
Australia's Macquarie Bank agreed.
Their analysts predicted a mere $500 million annually dumped into this new ETF from investors would be all that's needed to create a significant deficit in the copper supply... and send copper prices higher.
Even members of Congress got involved. Sen. Carl Levin, a democrat from Michigan, said the proposed ETF would "allow speculators to create a squeeze on the market."
Yet despite all this, there is little doubt now that the ETF will become a reality.
In fact, after a 2-year delay, the SEC finally gave the green light to JPMorgan's "Big Move" in January.
They are preparing a launch by 4th quarter of 2013.
Right now, at the time of this writing, further lawsuits filed against the SEC by copper users and producers have created another delay.
But don't expect this last gasp effort to overturn the ETF approval.
Like it or not, JPMorgan has very deep influence.
Not to mention: Physical copper ETFs already exist in Europe - from ETF Securities and Deutsche Bank - and have not disrupted the market.
In addition, the JPMorgan ETF has many legitimate backers. The United States Commodity Funds' CIO John Hyland pointed out that because of strict guidelines for ETFs, the proposed JPM physical copper ETF "would be the only participant [in the copper market] who cannot hoard copper".
Hyand went on to say he believes that physical copper ETFs would actually increase liquidity in the copper market.
But whether you agree with the benefit of having this ETF on the market or not, make no mistake. They should provide a huge tailwind for copper prices, much as precious metals ETFs have done for those metals.
In fact, it could single-handedly send copper to its highest price in history.
Even more, as of this writing, another ETF that has been sidelined for two years - the iShares physical copper ETF-was also just approved by the SEC. It plans to hold 121,200 metric tons of copper.
So, between the two proposed ETFs from JPMorgan and iShares, if they buy to their maximum target, it will account for 57 percent of the current copper inventory in the London Metal Exchange.
The decision on that ETF had been delayed into February because of the size of the planned purchases of copper. But it received approval too, despite the additional suits filed against the JPMorgan ETF.
This serves as further proof that the ETFs will be open for trading very soon.
So, get ready... And continue to check your inbox for the latest updates on this fluid situation from Money Morning. You can also visit us at www.moneymorning.com
Here are two additional catalysts we see contributing to a resurgent and powerful copper price spike in 2013...
Copper Catalyst #1: China's Economic Rebound
China is the world's biggest producer and consumer of copper, soaking up 40% of the world's supply.
During the early 2000s, Chinese demand for the metal grew at an astonishing 30 percent a year.
A recent slowdown put the brakes on that growth, but that's already changing. A strong rebound in China's economy has already begun.
According to report compiled by Xiamen University and the Economic Information Daily, the Chinese economy is expected to grow 8.235 this year, compared to last year's. 7.8%.
In fact, China recently announced a new infrastructure spending plan to the tune of 1 trillion yuan ($157 billion) focused on power grid expansion. Beijing also revealed plans to build 36 million new housing units.
Building new power grids is especially bullish for copper because grids are the single most important end-use for copper, accounting for 45-50% of Chinese demand.
The addition of 36 million new home will also suck up tons of copper due to the extensive use of copper in electrical wiring and plumbing.
But that could be just the tip of the iceberg.
Chinese Premier Wen Jiabao has said China has ample monetary strength and would "appropriately use that for preemptive policy and fine-tuning to propel stable economic growth."
In other words, China will use its huge capital reserves to keep its economy humming... no matter what.
And that means copper and other commodities will shoot higher on a tidal surge of Chinese spending.
Copper Catalyst #2: Supply Constraints
Last October, the industry association International Copper Study Group (ICSG) forecast that the market in 2013 would be in surplus for the first time in years. But only by a tiny 400,000 metric tons. That is a small amount when compared to a global market that is expected to grow to 21.2 million metric tons this year.
A long-term view on the market was taken by Fitch Ratings in a January report. It stated "Should new supply disappoint while recovery in the industrialized nations strengthens, deficits could persist, requiring higher prices to clear the market."
For investors unfamiliar with the copper market, for many years a copper surplus has been predicted.
But it never materialized, and is unlikely to, thanks to delays in major projects in Africa, Asia and South America due to large cost overruns. Many development projects, once seen as economically viable, are no longer so and are being abandoned.
Another reason copper projects are not being developed is lack of access to capital. Banks are still reluctant to loan even though the financial crisis seems to have passed.
Commerzbank recently said that Chile's Codelco, the world's largest copper producer, reported that in 2012 costs had risen by a whopping 30 percent due to higher energy costs and lower ore grades. Codelco's experience is widespread throughout the industry.
Another reality in today's copper market is lower ore grades at copper mines. The Escondida mine in Chile - the world's biggest copper mine - is a good example. The average copper content of the ore being mined fell from 1.72 percent at the end of 2007 to 0.97 percent by the end of 2011, according to mining giant Rio Tinto.
Editor's Note: Recently uncovered evidence shows Chinese tanks are secretly smuggling gold into the country. To learn what this means for the dollar according to a CIA Advisor, click here.
Clearly, the main catalyst for the price surge is the new physical ETFs coming to market. We don't know exactly when that will happen. But as an investor you should be prepared.
Right now, you can still dive into the current batch of futures-based copper ETFs to take advantage of higher prices.
The United States Commodity Funds has an excellent copper ETF, the United States Copper Index Fund ETV (NYSEArca: CPER). This investment vehicle holds copper futures traded on the CME.
For investors that think the copper ETFs will spike copper prices, other ETFs may appeal. ETFs, which contain copper mining companies, are sure to benefit from higher copper prices.
These include two ETFs that contain a basket of copper-producing companies stocks. The ETFs are the First Trust ISE Global Copper Index Fund (Nasdaq: CU) and the Global X Copper Miners ETF (NYSEArca: COPX).
When the physical copper ETFs hit the market, what will be the effect?
Possibly big, but at the least, provide a very positive environment for higher prices. The copper ETFs will be a great way to play a global growth theme in 2013 in both emerging and developed markets.
You can also look at copper miners. Here's your best bet right now...
Southern Copper Corp. (NYSE:SCCO) is headquartered in Phoenix, Arizona. It owns the largest volume of copper reserves of any publicly traded company, making it one of the largest copper miners in the world.
Along with its staggering 138 billion pounds of copper, SCCO's reserves also contain an additional 5.2 billion pounds of molybdenum, 2.8 billion pounds of zinc, and 898 million pounds of lead. At current production rates, these reserves equate to over 140 years of output!
As concerns grow about sufficient resources to meet world demands, you'll want to own the companies that own the largest reserves of those commodities.
That's because they stand to profit the most, along with their shareholders. SCCO's copper mines are the longest-lived in the industry, with an average life span of 81 years.
The company was founded back in 1952, and in 1956 construction began on the Toquepala mine in Peru. Toquepala started producing in 1960, and still provides 21 million tons of ore today.
SCCO has expanded considerably since then, and today is a fully integrated producer that mines, explores, smelts, and refines copper in Peru, Mexico, and Chile. As well, the company runs five underground mines producing zinc, lead, copper, silver, and gold.
The company is so efficient that its cash costs for a pound of copper are $0.37! Remember, copper sells for about $3.50/lb.
That allows SCCO to run up earnings of nearly 57% of sales, a generous profit margin indeed.
Management recognizes that copper's fundamentals remain excellent. Asia represents 60% of world copper demand, with China responsible for 40% of that. Management also knows that the industry's upside is limited in copper production. And that - coupled with declining ore grades - will result in a considerable deficit going forward. SCCO expects that deficit could reach 300,000 tons in 2013.
Southern Copper is forging ahead with expansion and exploration; the company will spend $5 billion over the next five years, while its copper production will nearly double over that same time span.
Investors get a set of world class assets, tops in reserves, and a growing production profile. And with a mine life of 81 years, SCCO has more than double the lifespan of its nearest competitors.
Invest in Southern Copper for a generous dividend and great prospects going forward.
Editor's Note: The People's Liberation Army is covertly bringing gold into China to hide in its central bank "off the books." In this must-see interview, the CIA's Financial Threat and Asymmetric Warfare Advisor reveals why many in the U.S. Intelligence Community fear this secret stockpile will soon be used to launch an unstoppable attack on the U.S. dollar. Click here to see the shocking evidence...
