Copper's Resilience Won't Last
The faltering Chinese real estate market hit iron ore first. Copper is next.
While the price of iron ore has fallen to multiyear lows, copper has held up remarkably well. The performance gap has been particularly striking given the mounting weakness in China's real estate market, a key demand driver for both materials. Copper's tighter supply conditions explain much of the divergent price performance, as well as the consensus enthusiasm for copper prices and the stocks of copper companies.
We think this optimism is misplaced, as it overlooks a demand-side quirk that portends trouble for copper in 2015. Although the consumption of both copper and iron ore is tied to Chinese real estate demand, copper is used much later in the construction process. As China's real estate starts have fallen this year, iron ore was first to feel the pain. Copper will be next. No copper mining stocks under our coverage trade at a material discount to our fair value estimates, and most appear overvalued.
Daniel Rohr does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.