Copper’s mega-bulls are‘throwing in the towel’
Investors are slashing their copper forecasts and unwinding bullish bets as fears of short-term oversupply and dwindling Chinese demand force traders to walk back predictions that copper would be this decade’s breakout commodity success.
Goldman Sachs this week exited a long-standing position in the metal well short of its previous target that prices will reach $US15,000 ($22,300) a tonne next year. The broker cut that forecast by a third to an average of $US10,100 a tonne in 2025.
While that sits well above the spot price of $US8947 a tonne, it speaks to the exuberance that flooded through metal markets earlier this year, underscored by ashortsqueeze that rocketed pricespast a record $US11,000 a tonne.
But copper has since plunged19 per cent. It is on the cusp of joining iron ore in a bear market as increasing inventories and soft demand from key customer China force commodity strategists to slash their projections.
“With the mega-bulls throwingin the towel, that leaves us more confident in our more recent view that there was little upside beyond the recent test up just above $US9300 late August,”said Westpac’s head of commodity and carbon strategy, Robert Rennie.
Even veteran analyst JeffCurrie, who for decades was the face of commodities research at Goldman Sachs, has turned cautious after declaring in May thatcopperwas the best trade he has seen in his career.
Mr Currie, who joined globalinvestment firm Carlyle Group in February, told Bloomberg this week that copper was likely to trade between $US8500 to $US9500 a tonne until policy support in China boosts demand.
Concerns about the near-term outlook for copper were exacerbated last week when BHP used its annual result to warn the copper market would remain in “marginal” surplus in 2024. Decarbonisation and the copper intensity of modern data centres support the medium-term bull case, it said.
BHP’s share price has gone down more than 20 per cent this year as weaker demand for raw materials inChina triggered a correction in the price of iron ore, its biggest earner.
But shareholders remain adamant that BHP should continue its push into copper despite abandoning its$75 billion bid for Anglo American.
“BHP has still outperformed most copper equities over the past three months so arguably acquisitions using scrip have become even more accretive,” said Tribeca portfolio manager BenCleary.
Tribeca’s largest position inits global natural resources fund remains Anglo American. But Mr Cleary, whopredictedBHP’s share price would eventually hit $100, hasn’t held a meaningful position in the stock for the past six months.
Doubling down
Even so, he remains steadfastthat copper stocks are a solid long-term bet.
“Anyone thinking beyond nextweek or month has the opportunity to take advantage of short-term market dislocations at the moment,” he said.
Leading US copper miner Freeport-McMoran estimates that a $US220 a tonne swing in copper prices would translate to $US430 million up or down in earnings.
Wilson Asset Management’sLeaders Fund has also held an underweight position in BHP for most of thisyear, and portfolio manager John Ayoub is waiting for volatility in commoditymarkets to ease before ramping up its position.
“For us to become mor e positive on BHP, we’d need to see stabilisation of iron ore, and then you’ll get the delta and performance from copper over the medium to longer term from the cash it will generate out of the iron ore business,” Mr Ayoub said.
“We’re getting closer; I wouldn’t say now is the time to go all in on it, but we’re certainly approaching that period.”
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