Where to now for copper? Macquarie reviews ASX copper stocks ratings and targets

For many investors, copper was meant to be “the next big thing” of 2024. There was plenty of talk of supply shortages and growing demand from the booming decarbonisation industry.

But, after a massive rally in the copper price that peaked in late-May, it’s been one-way traffic – with copper now having given up its entire 2024 gain. This has left many investors sitting on losses on ASX copper stocks wondering what went wrong, and what’s next for the key industrial metal.

Macquarie has just released its latest copper update. In the report, the broker tweaks its outlook and price targets for copper, as well as several key ASX stocks that produce it. We bring you the major changes.

Where is the copper price going over the next 1-2 years?

Macquarie only recently increased its copper price target by 7% to US$4.38/lb (“Commodities update: Hard Knock Li-Fe”, Macquarie Research 21 June 2024). This time, they’ve cut. The broker's revised 2024 target is down 4.9% to US$4.16/lb, its 2025 target is 4.2% lower at US$4.16/lb, and its 2026 target is trimmed 2.4% to US$3.76/lb.

Macquarie cited “weaker China and Ex-China demand and declining investor sentiment and positioning” as the main reasons for these changes. It also revised higher its 2024 supply expectations by 40kt (but cut 2025 by 20kt).

It’s worth noting here the current price of copper is around US$4.06/lb – so based upon Macquarie’s new targets, this allows a slender 2.5% upside over the next 18-months. It’s also worth noting from the chart above, just how quickly the fledgling copper bull market flamed out – it caught many by surprise!

Macquarie’s longer term copper price forecasts suggest investors shouldn’t be too quick to jump to the conclusion that copper is going to be the next, um, next big thing again any time soon. Their long term forecast takes us out to FY2030 – and at US$4.08/lb is roughly break even from the current price.

To be fair to Macquarie, they weren’t major copper bulls to start off with. Certainly their 2024 price targets were marked to market in recent months – that’s a sensible approach when prices are rising – but their 2025/26 and long term targets remained very conservative. As the broker points out, each of their copper price targets was/remains significantly below the market consensus.

The risk now, suggests Macquarie, is that if the recent pullback in the copper price is sticky, that is, if prices “remain subdued” – it could trigger wider consensus price target cuts – and this means “potential risks” for ASX copper stocks.

Which ASX copper stocks will be impacted the most?

Macquarie tips Sandfire Resources (ASX: SFR) and Capstone Copper Corp. (ASX: CSC) will be “highly impacted” by consensus cuts to the copper price. Macquarie’s own tweaks knock 23%, 19%, and 8% off SFR’s forecasts for FY25, 26, and 27 earnings per share (EPS), while CSC’s EPS forecasts lose 29%, 16%, and 15% respectively.

The smaller end of the ASX copper producer’s spectrum is likely to be impacted the most, says Macquarie, “due to their comparably high-cost operations and leveraged balance sheets”. Here the broker points out 29METALS (ASX: 29M) and Aeris Resources (ASX: AIS) as major losers.

Switching to the majors, Macquarie suggests that the impact on BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO) will be relatively “small”. The broker cut BHP’s EPS forecasts for FY25-27 by 4%, 3%, and 1%, and RIO’s by just 2%, 1%, and 1% respectively.

Which ASX copper stocks are still a buy?

There’s some good news for ASX copper investors here. Despite cuts to their copper price target and earnings forecasts for Aussie copper producers, Macquarie thinks the recent pullback creates a buying opportunity. The main reason is that the majors will likely view the recent pullback in stock prices as a buying opportunity: “We expect no pause in copper M&A as the majors transact, with acquisition premiums marking the spot valuation to the long-term market.”

The result is no changes to Macquarie’s ASX copper sector ratings, with all but 29M, BHP, and RIO currently rated at OUTPERFORM. The broker's copper price target cuts have taken a toll on stock price targets, though. Macquarie’s latest targets and ratings for ASX copper stocks in its coverage are shown in the table below.

This article first appeared on Market Index on Tuesday 13 August 2024.