Copper futures for July delivery fell 0.5% on Jun 18, touching $4.16 per pound — levels last seen in April. The metal has been under pressure of late and ended up losing 8% of its value in the past week following China’s announcement to sell reserves to rein in the commodity price rally. Further, copper prices were impacted by a firm dollar buoyed by the prospect of U.S. interest rate hikes. This is the worst decline seen so far since March 2020 when the COVID-19 pandemic affected demand due to the disruption of industrial activity.
Notwithstanding the current dip, copper prices are up around 18% year to date. Copper prices have been on an uptrend owing to accelerating demand on account of pick up in manufacturing activity, particularly in China. Meanwhile, inventories were low due to the pandemic induced slowdown in production. Notably, copper reached an all-time high of $4.90 per pound in May.
Last week, China announced plans to sell its reserves of copper, aluminium, and zinc in batches in the near future to boost supply, in a bid to bring commodity prices back to normal. China is the world’s top metals consumer and a major release of reserves could significantly change global supply and demand balances. Also, last week, the Fed indicated it may have to hike rates earlier than anticipated, which led to investors scurrying to the greenback. This, in turn, dealt a blow to metal prices.
However, growing demand for the metal, which has varied industrial uses amid supply constraints suggest that run-up isn’t over yet. Sustained growth in copper demand is expected to continue as the metal is essential to economic activity. Infrastructure development in major countries such as China and India, and the increasing global trend toward cleaner energy and electric cars will continue to support copper demand in the long term. Per the International Energy Agency, clean energy technologies will account for around 45% of copper demand in 2040, higher than 24% in 2020.
Meanwhile, grade decline, rising input costs, water constraints and scarcity of high-quality future development opportunities continue to weigh on the industry’s supply. Notably, miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies, which will aid margins in the long haul.
Copper miners fall under the Zacks Mining – Non Ferrous industry, which has gained 116.9% in a year compared with the S&P 500’s rally of 35.7%. The industry falls under the broader Basic Materials sector, which surged 42.4%. The industry currently carries a Zacks Industry Rank #89, which places it at the top 35% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
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4 Copper Stocks to Watch
We suggest investors to keep an eye on these four copper-mining stocks that have been handpicked by us. Each of these stocks have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and a VGM Score of A or B. We believe this combination offer the best investment opportunities. These stocks have also outperformed the S&P in the past year. This is shown in the chart below. These stocks are anticipated to carry the momentum forward backed by their earnings growth projections.
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Southern Copper Corporation SCCO: This company based in Phoenix, AZ engages in mining, exploring, smelting, and refining copper and other minerals.
The company has the largest copper reserves in the industry and operates high-quality, world-class assets in investment grade countries, such as Mexico and Peru. Its constant focus on increasing low-cost production is commendable. It has growth projects on track that will help achieve its target of producing 1.9 million tons of copper production by 2028.
The Zacks Consensus Estimate for the company’s earnings in 2021 suggests year-over-year growth of 117%. The estimate has moved north by 47% in 90 days’ time. It has a long-term estimated earnings growth rate of 18.7%. The company’s shares have surged 58.9% in the past year. It currently has a Zacks Rank #1 and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
BHP Group BHP: Headquartered in Melbourne, Australia, BHP Group engages in exploration, development, and production of oil and gas properties; and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal.
In 2020, BHP produced around 1.7 million tons of copper in 2020. The company is expanding its mine at Spence in Chile, extending its life for another 50 years. It has also boosted exploration spending for more copper from all over the world. The company has four major projects under development in petroleum, copper, iron ore and potash with a combined budget of $8.5 billion over the life of the projects, which will drive growth in the long run. Efforts to make operations more efficient through smart technology adoption across the entire value chain will continue to aid in reducing costs, thereby bolstering the company’s margins. Its focus on lowering debt will also contribute to growth.
The company has a long-term estimated earnings growth rate of 4%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 84%. The estimate has been revised upward by 4% over the past 90 days. The stock has a Zacks Rank #3 and a VGM Score of B. Its shares have appreciated 39.6% in the past year.
Rio Tinto plc RIO: Headquartered in London, the U.K., Rio Tinto engages in mining of aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.
The company’s world-class portfolio of high-quality assets and strong balance sheet positions it well to navigate through these turbulent times. Rio Tinto’s disciplined capital allocation supports its ability to sustain production and increase investment in development projects (in high-return iron ore and copper), while delivering superior returns to shareholders. Notably, its copper projects at Resolution (Arizona) and Winu (Western Australia) offer significant growth prospects.
The Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year growth of 41%. The estimate has been revised upward by 11% over the past 90 days. In a year’s time, the company’s shares have gained 44.4%. The company has a Zacks Rank #3 and a VGM Score of A.
Freeport-McMoRan Inc. FCX: This Phoenix, AZ-based company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining of copper concentrates.
Freeport is conducting exploration activities near existing mines with focus on opportunities to expand reserves. The company will benefit from ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. It recently completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. Efforts to cut costs and debt levels appear encouraging.
The Zacks Consensus Estimate for earnings for fiscal 2021 suggests year-over-year improvement of 480%. The estimate has been revised upward by 22% over the past 90 days. Shares of the company have soared 224% over the past year. It has a Zacks Rank #3 and a VGM Score of A. It has a long-term estimated earnings growth rate of 28.7%.
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