Copper Miners Outlook: It's Worse Than You Think
The battered stocks may screen cheap, but we see further downside as Chinese demand from real estate and power activity ebb.
The battered stocks may screen cheap, but we see further downside as Chinese demand from real estate and power activity ebb.
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.
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