Copper stocks have been under pressure in recent months, driven by a 16% drop in prices from record highs in May.
Despite this correction, RBC Capital Markets analysts believe copper could find a floor near its current levels, at around $4.00 per pound.
Analysts point out that while global economic concerns, especially in China, have weighed on prices, supply constraints remain severe. Any improvement in demand, especially from China, could push prices higher again.
RBC Bank noted that the copper market saw mixed signals.
On the other hand, positive indicators include the rise in the Chinese import premium to $60 per tonne from minus $14 in mid-June, and a 15% decline in copper stocks in Shanghai over the past month.
On the other hand, London Metal Exchange stocks rose by 40% during the same period, reflecting the ongoing economic uncertainty.
“A broader global slowdown remains a downside risk that has historically seen copper fall to marginal cost ($2.75-3.00/lb); however, if we do see a softer downside and interest rate cuts provide support, we could be approaching a bottom around $4.00/lb,” analysts said.
For copper stocks, the outlook remains cautiously optimistic. Since the beginning 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, 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 counting on stronger operating performance to meet annual guidance.
According to the latest industry update, about 45% of the annual production target has been achieved so far, with a significant increase expected in the coming months. However, costs are tracking about 4% above the midpoint of guidance.
Analysts noted that “second-quarter results were helped by stronger metals prices, with copper up 15% and gold up 13% QoQ, offsetting weaker operations, resulting in about 67% of covered copper producers beating EBITDA estimates.”
Many copper producers faced challenges during the quarter, but remain optimistic about stronger performance in the second half of 2024.
Producers like Capstone, Teck (TECK), Ivanhoe, Hudbay (HBM) and Lundin are focused on ramping up key projects and improving operations, RBC says.
Costs remained generally under control in the first half, with further improvement expected at Teck due to higher QB2 volumes and at Capstone with the successful commissioning of the Mantoverde development project.
Freeport (FCX) and First Quantum are also well positioned to meet their full-year guidance if operations remain stable in the coming months, according to RBC.