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The Copper Conundrum

Declining prices make commodity producers look cheap, but Morningstar analysts believe there is more downside.

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The outlook for copper prices is worse than most investors think. Prices have marched steadily downward from their $4.50 peak at the start of 2011. At the end of 2015, they sat around $2.10 per pound. Battered copper-mining stocks may now screen as cheap, but we see further downside.

This 50% collapse has been met with a diverse set of opinions about the future trajectory of prices. Bulls point to declining ore grades, solid if slower demand growth from China, and the need to develop new mines to meet future demand. Bears question China's ability to maintain rapid growth, point out recent deflationary pressures on copper costs, and note the plethora of new and relatively low-cost mines that will soon start production. Long-term copper price estimates range from $2.25 to $3 per pound.

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Jeffrey Stafford does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.