Macquarie just upgraded its copper forecast by 14% (and its price targets for ASX copper stocks)

Copper is likely to become one of the most important industrial metals of our lifetime. Not only are market inventories relatively tight, a slew of other issues like supply chain disruptions, and the ongoing recovery of the world’s second largest economy, China, potentially makes copper one of the top long-term trades in town.

And while gold and silver attract a lot of attention given their respective prices are at multi-year highs, copper is up more than 20% this year alone. This is a trend that is likely to continue, says ANZ’s commodities team of Daniel Hynes and Soni Kumari.

“Copper is up over 20% since the start of the year, as mine closures triggered concerns about supply tightness. This has been exacerbated by strong demand amid an acceleration in the energy transition. We maintain a bullish outlook but can’t dismiss a short-term correction,” Hynes and Kumari wrote last week.

The last line of ANZ’s thesis - the bullish outlook and short-term correction part - is also the core of Macquarie’s thesis on the copper price.

“The Macquarie Commodities Strategy Team view's copper's recent price movement as principally driven by investor sentiment and rising expectations of a re-acceleration in global growth. However, given current fundamental indicators, the move appears overdone in the short term and the risk of a share correction is very high,” analysts wrote this week.

But given the long-term bullish thesis is intact, the team have used the expectation of a pullback to re-evaluate some of their price and stock forecasts for the ASX-listed copper space. This wire investigates those changes.

The numbers and the reasons

Before we do anything else, let’s take a look at the revisions to the copper price that Macquarie have made:

• CY24 prices [could] increase by 7% to US$9,671/t. CY25 prices have also been lifted, up 9% to US$9,575/t.

• Over the medium term, the market is expected to swing back to surplus, where our CY26 prices are 1% lower to US$8,500/t and CY27 prices are unchanged at US$9,500 as the market approaches a balance.

• In the longer run, we continue to forecast deficits, our CY28 price lifted 15% to US $11,500/t due to the tighter balance. Our long-run real price (2024 dollars) has increased 7% to US$9,000/t due to higher inducement hurdle rates, lower marginal grades and high capital costs.

It’s this medium term outlook that is critical - the Macquarie team note that there are several major projects in the pipeline that are due to start production by 2030 including at BHP’s Escondida in Chile and Glencore’s project in Argentina. Both BHP and Glencore are two of the world’s largest copper producers.

What does this mean for the major players?

Let’s start with the three of the biggest diversified miners that produce copper: BHP (ASX: BHP), Rio Tinto (ASX: RIO), and South32 (ASX: S32).

“On our forecasts, BHP offers the greatest leverage to copper among large cap diversified miners. In FY25e (YE June) we expect Copper EBITDA to represent around 30% of the group total, followed by S32 at 22% and RIO at 14%,” the team says.

If you count Newmont Mining (ASX: NEM) in this group as well, Macquarie’s revised earnings forecasts suggest that their copper exposure could add anywhere between two and five percent to their balance sheets.

For some of the smaller players, the numbers are far more mixed and far more volatile. While Sandfire Resources (ASX: SFR) could have a spectacular year in FY24, the numbers look less attractive (relatively speaking) in the subsequent years. Likewise, for Aeris Resources (ASX: AIS), investors may be waiting until FY26 to see their investments bear fruit. And in a market that has a very short attention span, investors may not be patient enough to wait to find out if results come to bear.

Price targets and ratings changes

Here are the changes as emphasised by Macquarie:

29Metals (ASX: 29M)

• Rating: Upgraded to NEUTRAL from UNDERPERFORM

• Price target: $0.50 from $0.26 (+92%!)

Aeris Resources

• Rating: Upgraded to NEUTRAL from UNDERPERFORM

• Price target: $0.30 from $0.20 (+50%!)

BHP Group (BHP)

• Rating: NEUTRAL

• Price target: $42 from $43 (+2%)

Newmont Mining (NEM)

• Rating: OUTPERFORM

• Price target: $71

Rio Tinto (RIO)

• Rating: NEUTRAL

• Price target: $121 from $123 (+2%)

Sandfire Resources (SFR)

• Rating: OUTPERFORM

• Price target: $10.50 from $10.80 (+3%)

South32 (S32)

• Rating: OUTPERFORM

• Price target: $4.20 from $4.25 (+1%)

A balanced approach

One reason the price target changes are minimal for BHP, RIO, and S32 is this line in Macquarie notes in the “key risks” section of its report:

“Thematically, the accelerating ESG momentum and potential carbon tax could introduce further valuation downside risks, reflected in a higher cost of borrowing and multiple compression,” analysts write.

Of course, the key risks for all the firms involved are that the copper price forecasts a) don’t play out, b) don’t translate to earnings because production stalls or is hindered for whatever reason, and/or c) exchange rates may dilute or boost the earnings profiles of these firms.

One thing that is for sure, investing in copper is going to be an interesting ride for years to come.

This article first appeared on Market Index.