Here is the latest on copper price forecast from UBS as reported in the AFR yesterday. A fairly upbeat forecast.
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Copper a better bet than iron ore and lithium
Joanne TranMarkets reporter
AFR
Jul 8, 2024 – 4.08pm
For investors trying to decide which commodity and/or mining company to get exposure to, UBS is the latest broker to pick copper over iron ore and lithium amid signs of dwindling supply for the base metal.
Copper on the London Metal Exchange is trading near the highest level in almost four weeks of around $US9944 ($14,748) a tonne after rallying almost 4 per cent in the last week. That’s after rocketing above $US11,000 earlier in the year as traders ramped up bets that producers will struggle to
meet growing demand for the industrial metal.
Broker UBS says it prefers base metals copper over iron ore and lithium. Bloomberg
But the wave of speculative money lost steam in May as investors shifted their focus back to weakening demand from China, its biggest consumer.
There have, however, been tentative signs that the market is starting to firm after copper stockpiles in China fell last month following a surge in May.
While UBS said investor enthusiasm for copper had pushed the price “too high, too fast” back in May, the fundamental outlook for the industrial metal remained “compelling”.
“[We are] expecting a deficit this year and for this to persist and grow over the coming years with a strong supply recovery unlikely,” said UBS analyst Lachlan Shaw in a note to clients.
The broker is also bullish on aluminium, which it says has “attractive medium-term fundamentals” and to a lesser extent metallurgical coal which is used in steelmaking and has a “constructive outlook”.
On the sharemarket, the broker’s top commodity picks included ASX-listed miners South32 and Newmont Corporation, which both have exposure to copper.
ANZ also wrote in a note to clients that increased expectations of interest rates cuts by the US Federal Reserve was also buoying sentiment towards copper, along with “bullish inventory withdrawals” from LME registered warehouses and retreating stockpiles on the Shanghai Futures Exchange.
Copper’s short squeeze
Perth-based fund manager Sam Berridge, who oversees Perennial’s Natural Resources Trust, said he had cut his exposure to around 10 per cent of the portfolio after copper’s short squeeze in May when hedge funds scrambled to cover their bearish bets.
Mr Berridge said he was concerned about the demand for copper in the short term, describing indicators in the US and China as “soggy”.
“Rather than an improvement in copper fundamentals, I suspect the recent bounce back was more a reflection of a bit of weakness in the US dollar,” he added.
As for iron ore, UBS warned that the fundamentals for Australia’s top commodity export was “weak” on softer demand and strong levels of supply at the end of the second quarter.
Mr Shaw expects the steelmaking ingredient to plummet to a range of $US90 to $US100 a tonne, well below the prices in Singapore with iron ore futures currently traded near $US108 a tonne on Monday.
UBS has cut its price target for iron ore giant Fortescue Metals by 15 per cent based on the iron prices, rolling forward estimates, and lower realisations, which means the company has to mine more tonnes to get to higher grade ore.
The broker is also
cautious about lithium prices and lithium-related stocks, also citing “robust” supply and weak demand.
Mr Berridge said his base case for the price of iron ore was for it to go “sideways” until the end of the year. He’s not looking to add any exposure to lithium, either.
Instead, the fund manager is most bullish on bauxite, a subset of aluminium, tipping it as the “new iron ore” for the next five years as “China is importing more and more of it as their domestic reserves run out”.
Mr Berridge owns ASX-listed copper miner Metals Acquisition. The stock has jumped nearly 11 per cent this year and traded at $20.94 apiece on Monday.
Elsewhere in base metals, Fitch Ratings has upgraded its 2024 price forecast for zinc to hit $US2600 a tonne, citing robust market fundamentals. Zinc prices have risen over 14 per cent so far this year, pushed higher by a tighter supply outlook than previously anticipated.
(20min delay)