INVEST IN COPPER FOR THE NEXT DECADE – COPPER STOCKS
After the crash in late March, copper prices rose sharply, reaching two-year highs last week. Goldman Sachs believes the rally will continue.
Copper prices, often seen as the flagship of the global economy, plummeted in late March as the coronavirus pandemic spread across the globe and sent markets down..
However, the spot price quickly rebounded from $ 2.1195 a pound on the New York Mercantile Exchange on March 23 to $ 2.9580 a pound on Friday. Price is up 5.87% YoY and 9% QoQ, initially driven by a surge in demand in China.
«While this is in stark contrast to the average 5% drop in the Big Four (Anglo, BHP, Glencore, RIO) stock prices, we remain optimistic about the global economic recovery led by China.», – Goldman Sachs Metals & Mining Analysts said.
CEO of Goldman Jack O’Brian and his team attributed their optimism in part to a recovery in the auto and home appliance sector, the continued resilience of the Chinese real estate market and China’s second-largest monthly lending on record. Weaker dollar and higher global inflation expectations are expected to support copper prices in the future.
Copper remains «beloved» commodities Goldman due to cyclical and structural support and ongoing supply issues. Bank believes Glencore and BHP can best benefit from rising copper prices.
«The latest data suggests that the pattern of hard demand is becoming increasingly clear as robust demand in mainland China has sent LME (London Metal Exchange) inventories to their lowest level since 2005, and declines in processing fees indicate limited market for concentrates, – says the analytical note. – We continue to believe copper could be stronger as demand for real estate in China remains strong and supply continues to grapple with the impact of Covid-19».
In assessing supply prospects, Bank of America strategists note that the supply of copper ore has declined, while the supply of refined copper has increased. They suggested that this discrepancy is not sustainable, given the usual causal relationship between the two, while the lack of staff at sites increases the risk of disruption for mining companies..
BofA strategists stressed that underlying ore supply growth has been steadily declining in recent years, with copper concentrate production in 2020 remaining roughly at the same level as in 2016..
«While production is set to pick up next year, we remain concerned that unexpected losses could increase as mining operations, especially in Chile, have only had the necessary personnel in recent months, they said. – In this regard, we took into account the usual reserves of 6% for 2021, which implies a deficit of 188 thousand tons; however, there is a risk that the deficit could eventually become much larger».