Stocks have come under downward pressure in recent months as copper prices have fallen 16% from their May highs.
Despite this decline, analysts at RBC Capital Markets believe that copper prices could stabilize near the current price of around $4 per pound.
Analysts note that global economic concerns, especially those related to China, have had a negative impact on prices, but copper supplies remain limited. An increase in demand, especially from China, could lead to a renewed increase in copper prices.
According to RBC, the copper market showed mixed indicators.
On the one hand, encouraging signs include China’s import premium, which has risen to $60 per tonne from a previous low of $14 in mid-June, and a 15% reduction in the amount of copper stored in Shanghai from the previous month.
In contrast, inventories at the London Metal Exchange (LME) have risen 40% over the same period, indicating continued economic unpredictability.
“A broad-based economic downturn continues to be a potential negative factor that would traditionally send copper down to the cost of production ($2.75-$3.00 per pound); however, if the economic downturn is milder and lower interest rates provide support, we could approach the bottom of the price at around $4.00 per pound,” the analysts said.
For companies operating in the copper sector, the future looks cautiously positive. Since the beginning of the year, these copper producing companies have outperformed the metal itself, with their stock prices increasing 22% compared to copper’s 5%. Despite recent operational difficulties, these companies’ stock prices are considered to be at “reasonable” levels.
RBC analysts note that the second half of 2024 should be a make-or-break moment for copper companies, many of which depend on improving operating results to meet annual financial targets.
According to the latest industry report, about 45% of the year’s production target has been achieved so far, and a significant increase in production is expected in the coming months. However, costs are about 4% higher than the average cost forecast.
“Second-quarter financial results were positively impacted by higher metal prices, with copper up 15% and gold up 13% from the first quarter, which offset weaker operating results, leading approximately 67% of RBC-covered copper producers to exceed their earnings before interest, taxes, depreciation and amortization (EBITDA) expectations,” analysts note.
Several copper producers faced difficulties during the quarter, but are hopeful of improved results in the second half of 2024.
According to RBC, companies such as Capstone, Teck (TECK), Ivanhoe, Hudbay (HBM) and Lundin are focusing on improving their major projects and overall operations.
Costs remained well within expected ranges in the first half of the year, with Teck expecting to see cost improvements from increased production volumes at its QB2 project and Capstone expecting to benefit from increased production at its Mantoverde development project.
Freeport (FCX) and First Quantum are also well positioned to meet their annual operating goals if their trading operations continue without significant disruptions in the coming months, RBC reports.
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