Copper stocks have been under pressure in recent months due to a 16% price drop from their record highs in May.
Despite this correction, RBC Capital Markets analysts believe copper could find a bottom near current levels, around $4.00 per pound.
Analysts point out that while global economic concerns, especially in China, have depressed prices, supply constraints remain tight. Any improvement in demand, especially from China, could potentially push prices back up.
The copper market has seen mixed signals, RBC notes.
On the one hand, positive indicators include China’s import premium rising from $14 per tonne to $60 per tonne, and a 15% decline in copper inventories in Shanghai over the past month.
On the other hand, London Metal Exchange (LME) stocks have risen 40% over the same period, reflecting continued economic uncertainty.
“A broader global slowdown remains a downside risk that would historically indicate copper falling towards marginal costs ($2.75-3.00/lb); But if we do indeed have a softer landing and rate cuts provide support, we could be close to a bottom around $4.00/lb,” analysts said.
The outlook for copper stocks remains cautiously optimistic. Since the start of the year, copper stocks have outperformed the metal itself, with shares up 22% compared to copper’s 5% gain. Despite recent setbacks in operating performance, the shares are trading at “reasonable” valuations.
RBC analysts point out that the second half of 2024 is expected to be crucial for copper producers, with many companies relying on stronger operating performance to meet annual expectations.
According to the latest sector update, approximately 45% of the annual production target has been achieved so far, with a significant increase expected in the coming months. However, costs are about 4% above the midpoint of expectations.
“Second quarter results were helped by stronger metals prices, with copper up 15% and gold up 13% from Q1, offsetting weaker activity, causing ~67% of covered copper producers to exceed EBITDA estimates exceeded,” analysts pointed out.
Several copper producers faced challenges during the quarter but remain optimistic of stronger performance in the second half of 2024.
Manufacturers such as Capstone, Teck (TECK), Ivanhoe, Hudbay (HBM) and Lundin are focusing on ramping up key projects and improving operations, RBC says.
Costs remained generally under control in the first half, with expectations of further improvements at Teck due to higher QB2 volumes and at Capstone due to the successful ramp-up of the Mantoverde Development Project.
According to RBC, Freeport (FCX) and First Quantum are also well positioned to meet their full-year expectations if business remains stable in the coming months.
