Citigroup says copper fever may raise the temperature for...

Citigroup says copper fever may raise the temperature for Australian miners

http://www.smh.com.au/business/mark...re-for-australian-miners-20170221-guictg.html

Copper prices may soar to $US8000 a tonne, or $US3.60 a pound, by the end of the decade according to Citi analysts, who have also upgraded their forecasts for a number of Australian miners highly exposed to the commodity.
The spot price of copper has risen strongly over the past year, particularly since October. It's up 30.3 per cent on February last year, last trading at $US6045.50 a tonne.

The price of copper may rise to $US8000 a tonne by the end of the decade, Citi analysts believe. Photo: Martin Leissl
Copper, the world's third most widely-used metal after iron and aluminum, is used in cyclical industries such as construction and industrial machinery manufacturing. For this reason, copper is seen by many as a key leading indicator of global growth and even has the nickname "Dr Copper", a reference to its use as an economic barometer.
Citi analysts expect demand to outstrip supply and push peak prices to $US8000 a tonne by 2020. Average prices are forecast to be lower, at $US7115 a tonne by 2020, or $US3.16 a pound, after rising 8.3 per cent this year and a further 5.8 per cent in 2018.
"The combination of stronger-than-expected Chinese demand, a clear lack of visible copper inventory build, an end to cost deflation, and the US-centric reflation story after the Trump election victory sparked positive price momentum through the latter stages of 2016," the Citi analysts said in their report.
Slim pipeline

The analysts expect little further supply growth from Peru, Mexico or Kazakhstan and believe that the "dramatic" decline in investment in copper capacity since 2012 means the copper pipeline will be slim for the remainder of the decade.
"Unlike bulk commodities, new copper ore discoveries can take decades to come to production," they note. Meanwhile, China, whose urbanisation drive has led it to consume about 47 per cent of the world's copper, is expected to keep copper demand high.
Australia – the world's fifth-largest copper producer in 2016 – has a number of miners highly exposed to copper, and the base metal upgrade has flowed through to their forecasts. Citi on Tuesday upgraded its forecasts for a number of stocks.
Miners Oz Minerals and Sandfire Resources got the heftiest upgrades: Oz Minerals' target price was raised to $11.50 from $10.50 and Sandfire Resources' upgraded from $7.00 to $7.30. The pure-play copper miners closed on Tuesday at $9.96 and $6.85 respectively. A research team led by analyst Trent Allen wrote that, of the two, Oz Minerals is the preferred stock, as it compares well with global producers, including some much larger global players, when it comes to copper extraction costs.
Significant exposures

Many of Australia's gold miners are also exposed to copper. Newcrest Mining expects to get 18 per cent of its 2018 revenues from copper, while OceanaGold and Evolution Mining also have significant copper exposures (12 per cent and 10 per cent of projected 2018 earnings respectively).
While Citi is far from alone in expecting prices to rise, most research houses are far more circumspect on potential rises in the copper price. Reporting in pounds, Deutsche Bank forecasts copper prices of $US2.53 a pound by 2020. Meanwhile, a $US2.75 a pound valuation underlies Ord Minett's ratings, while RBC's 2020 forecast is $US3.08 a pound.