By Kevin Grewal, Editorial Director at www.SmartStops.netIn the midst of a natural disaster and catastrophe in Chile, the metals and mining industry is likely to see positive price supports in the near future. One major factor that drives the price of metals is the efficiency and speed of the extraction of the metal in the production and mining process. According to analysts, this process is likely to be hindered. The good news is that most of Chile's copper deposits and port facilities are in the northern half of the nation and had no major reports of damage. However, despite locality, numerous copper mines, responsible for more that 15% of Chile's copper output, halted operations as a result of the quake. Although most copper mines are expected to resume operations, many suggest that production and output could be hindered, due to damage to Chile's infrastructure, disruption in electricity and power generation and an increase in difficulty in transportation to and from the mines. Metals and mining giants, BHP Billiton ( BHP) and Rio Tinto ( RTP), who both hold significant stakes in the world's largest copper mine, have openly stated that operations in Chilean mines will resume and damage to mines is obsolete. However, they are still concerned with production efficiency. Some ETFs that are likely to benefit from supply pressures caused by the earthquake and see positive price forces include:
SPDR S&P Metals & Mining ( XME), which closed at $51.31 on Friday.
iPath DJ-UBS Copper TR Sub-Idx ETN ( JJC), which closed at $44.70 on Friday.
iShares MSCI Chile Investable Mkt Idx ( ECH), of which a significant portion of assets are allocated to copper mining operations. ECH closed at $56.75 on Friday.
PowerShares DB Base Metals ( DBB), which allocates a significant portion of its asset base to futures contracts on copper. DBB closed at $20.80 on Friday. Although positive price pressures are expected to be seen in these ETFs, it is equally important to consider the inherent risk that they carry. To help mitigate these risks, it is important to implement an exit strategy that triggers price points at which an upward trend could potentially be coming to an end and enable one to preserve equity. According to the latest data at www.SmartStops.net, an upward trend in the aforementioned ETFs could come to an end at the following price points: XME at $48.19; JJC at $42.18; ECH at $54.49; and DBB at $19.77. These price points change on a daily basis as market conditions fluctuate; updated data can be found at www.SmartStops.net. Written by Kevin Grewal in Laguna Niguel, Calif.