Benzinga - by Matt Whittaker, .
Copper prices have been on the rise recently, raising questions of what the commodity's market might be saying about the broader economy.
Because of its wide industrial uses in automobiles, electronics and buildings, copper is often considered a leading economic indicator. Although recent price moves have been tied to short-term supply shortages, there is also a sense of cautious optimism about the broader economy.
Still, the economic outlook for China, the world's biggest copper consumer, isn't entirely clear. And interest rate cuts in the United States and Europe that might spur economic activity are still theoretical at this point.
That appears to be keeping copper market participants from piling into the metal, which remains well below its 2022 record high of a little more than $5 per pound in New York and $10,730 per metric ton in London.
"The recent rise in copper prices, which we expect to continue, is probably an early signal that the Chinese economy is getting back on track and the massive appetite they have for real estate is about to get back on track," said Sean Casterline, a retirement plan consultant with investment advisory firm Delta Capital Management. "Copper's recent price movements should lend confidence to investors that the global economy is on good footing and that the recent interest rate increases from the Federal Reserve are not halting growth in real estate."
Lower Mine Supply Helps Raise Prices
Copper futures recently hit an 11-month high of $9,164.50 a ton on the London Metal Exchange in response to strength in the equities market, anticipation of looser monetary policy and news that Chinese smelters would reduce production because of low processing fees.
Supplies of the copper concentrate on which smelters rely has been dwindling amid lower mine supply. A court ruling forced the closure of Canadian miner First Quantum Minerals' (OTC:FQVLF) huge copper mine in Panama. Zambia's state utility asked miners to reduce their electricity use. Producers Anglo American (OTC:NGLOY), Teck Resources (NYSE:TECK) and Southern Copper Corp. (NYSE: (SCCO) reduced copper production outlooks.
"We now expect the market to be in deficit for this year for both concentrates and metal due to further mine cuts," a recent Macquarie note said.
Higher Copper Prices May Help Miners
The Macquarie note sees copper prices peaking at $9,500 per metric ton in the third quarter of this year. Goldman Sachs is more bullish, saying it expects copper to reach $10,000 a metric ton by year-end.
That stands to help copper mining companies.
Gimme Credit analyst Evan Mann expects Freeport-McMoRan Inc.'s (NYSE:FCX) free cash flow after dividends to be positive this year.
"With recent supply disruptions and continued demand growth, FCX expects the copper market to be in deficit as the year progresses, suggesting tighter market conditions and price improvement over the near term," Mann said in a note.
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Another copper play is diversified miner Anglo American, which Barron's recently said could be a promising buy as copper prices rise.
Jefferies mining analyst Christopher LaFemina told the financial magazine the company isn’t getting credit for that metal because of operational problems, a disappointing production outlook and a slump in diamond and platinum-group markets
"I agree that the stock isn't getting a major credit for its copper exposure," RBC Capital Markets analyst Srivathsan Manoharan told Benzinga. "However, with improved copper sentiment, the shares have outperformed peers. We are most positive on copper this year driven by supply disruptions and low inventories."
Investors looking for more diverse exposure to copper producers can consider the Global X Copper Miners ETF (NYSE:COPX), Sprott Copper Miners ETF (NASDAQ:COPP), Sprott Junior Copper Miners ETF (NASDAQ:COPJ) and iShares Copper and Metals Mining ETF (NASDAQ:ICOP).
Copper Expected To See A Step Change In Demand
Improvements in mine supply will likely bring the copper market back into a surplus in 2025, Macquarie said. But by 2027 it will swing back to a deficit because of the electrification required by the "rapidly accelerating" energy transition, which will expand the supply shortfall to a yawning 1.3 million metric tons.
Copper prices could rise above $10,000 per metric ton by 2028, according to Macquarie.
"It is becoming clear that copper is now recognized as an essential metal that faces an uncertain future for its supply chain," said Eric Saderholm, managing director of exploration, with American Pacific Mining Corp. (OTC:USGDF), a precious and base metals explorer and developer with projects in Alaska, Montana and Nevada.
"The belief that copper is simply responding to short-term supply dynamics does not account for the kinds of inventory or mine production shortfalls expected in the coming years," Saderholm told Benzinga.
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