Jeff Stafford: The outlook for copper is worse than most think. Battered copper-mining stocks may screen cheap, but we see further downside.
Despite many analysts dialing back their near-term copper-price forecasts, they remain bullish on the long term. We disagree and forecast a long-term price of only $2 per pound, mainly because we see mounting evidence that Chinese copper demand reached a cyclical peak in 2015. Ebbing Chinese demand from real estate and power activity are the main culprits.
On the supply side, cost deflation, a flattening of the supply curve, and rising scrap supplies all threaten prices.
The implications for copper miners are grim, especially those that carry a lot of debt. For instance, we see big downside risk is shares of Freeport-McMoRan (FCX).
And high-quality miners don't offer a place to hide. Southern Copper (SCCO), one of the lowest-cost producers we cover, also looks highly overvalued. In a world of $2 copper, none of the copper miners we cover earn our narrow economic moat rating.