Copper Hits $10K/Ton, SQM & BHP Seen as Top Picks

Key Takeaway

• Copper prices hit $10,000 per ton, driven by demand for carbon-neutral technologies; investment in copper recommended.
• Sociedad Quimica y Minera de Chile SA (SQM) and BHP highlighted as key investment opportunities with potential upsides of 34.9% and modest growth, respectively.
• Goldman Sachs raises copper's year-end price target to $12,000 a ton amid supply stress and expected metal deficits from 2024.

Copper Market Dynamics

Copper prices have recently reached a significant milestone, touching $10,000 per ton. This surge in price is attributed to the metal's crucial role in the transition towards carbon-neutral and net-zero goals, with its wide range of applications in data centers, wind turbines, and electric vehicles underscoring its importance. Will McDonough, CEO of Corestone Capital, emphasized the growing conversation and interest in copper, suggesting that the metal's demand is likely to increase further due to industrial and population growth. McDonough advocates for including copper in investment portfolios as a long-term asset, recommending an allocation of 5%-10% in "stores of value," which includes commodities like gold, silver, platinum, lithium, and copper.

Investment Opportunities in Copper

Amid the bullish outlook on copper, investment opportunities within the copper market have been highlighted, with a focus on Sociedad Quimica y Minera de Chile SA (SQM) and BHP. Despite a 31.2% dip in SQM's shares over the last 12 months, McDonough remains optimistic about the company due to its significant production of lithium and copper, which are essential for the battery and electrification movement. FactSet data shows a positive outlook among analysts for SQM, with a majority holding buy or overweight ratings and an average price target suggesting a 34.9% potential upside. Australian miner BHP, known for its diversified exposure not just to copper but also to gold and iron ore, is recognized for its resilience, with analysts' ratings and a modest potential upside reflecting a cautiously optimistic view.

Copper Futures and Market Expectations

Copper futures are recommended as a strategic way to gain exposure to the metal's potential price appreciation. This suggestion comes amid a broader rally in risk assets and speculation of Federal Reserve rate cuts. Goldman Sachs Group Inc. has raised its year-end price target for copper to $12,000 a ton, citing supply stress and the potential for a "stockout episode" by the fourth quarter. This bullish stance is supported by the expectation of open-ended and mounting metal deficits from 2024 onwards, despite concerns over high prices potentially discouraging consumption and leading to aluminum substitution.

Global Implications and Strategic Agreements

The global demand for copper is intricately linked to strategic international agreements, such as the updated minerals-for-infrastructure deal between the Democratic Republic of Congo (DRC) and China. This agreement, which ties annual payments for infrastructure projects to copper prices remaining above $8,000 per ton, underscores the metal's significance to the DRC's development strategy and China's investment in Africa's mineral sector. Such developments highlight the critical role copper plays not only in global industrial growth but also in international economic and development strategies.

Street Views

• Clive Maund (Bullish on Giant Mining Corp.):

  "Giant Mining is therefore rated an Immediate Speculative Buy for all timeframes."