Copper stocks have been under downward pressure over the past several months, with copper prices down 16% from their peak levels in May.
Even with this price decline, analysts at RBC Capital Markets suggest that copper prices may stabilize near their current levels, around $4.00 per pound.
Analysts point out that global economic concerns, especially those related to China, have had an impact on prices, however, copper availability remains limited. Increased demand, especially from China, could lead to copper prices rising again.
The copper market has shown inconsistent trends, RBC notes.
Positive developments include an increase in the import premium from China to $60 per tonne from the previous figure of -$14 in mid-June, and a 15% decline in Shanghai copper stocks over the past month.
In contrast, inventories on the London Metal Exchange (LME) rose 40% over the same time period, indicating continued economic uncertainty.
“A more widespread economic downturn remains a potential downside factor that would typically see copper fall to its marginal cost of production ($2.75-3.00 per pound); however, if the economic downturn is less severe and lower interest rates provide support, we could be approaching a low price point around $4.00 per pound,” the analysts said.
For copper-related companies, the outlook is one of cautious optimism. Since the start of the year, copper stocks have outperformed the metal itself, with the stocks up 22% compared to the 5% rise in the price of copper. Despite some recent operational difficulties, the stocks are trading at reasonable price levels.
Analysts at RBC point out that the latter half of 2024 is likely to be very important for copper producers, as many of them depend on improved operating results to meet their annual targets.
According to the latest industry report, about 45% of the annual production target has been achieved so far, with a significant increase in production expected in the coming months. However, costs are about 4% higher than the average expected costs.
Analysts stressed that the second-quarter results benefited from higher metal prices, with copper up 15% and gold up 13% compared to the first quarter, which offset weaker operating results, with about 67% of the copper producers we monitor beating their expected earnings before interest, taxes, depreciation and amortization (EBITDA).
Many copper producers faced headwinds during the quarter, but maintained positive expectations for improved results in the second half of 2024.
Companies like Capstone, Teck (TECK), Ivanhoe, Hudbay (HBM) and Lundin are focused on accelerating large projects and optimizing their operations, according to RBC.
Costs were largely under control during the first half of the year, with further cost reductions expected at Teck due to increased production volumes at QB2 and at Capstone with successful progress on the Mantoverde development project.
Freeport (FCX) and First Quantum are also well positioned to meet their annual forecasts if their operations continue without major issues in the coming months, according to the RBC report.
