Copper futures for May delivery climbed 1.17% to $4.1190 per pound on Mar 17, 2021. Three-month copper on the London Metal Exchange gained 1% to $9,024.5 per ton. Accelerating demand for the red metal owing to pick up in manufacturing activity, particularly in China, amid concerns over production in some Latin American countries is driving copper prices. Investors are piling into copper as demand is expected to remain robust in the coming years on unprecedented stimulus programs from governments targeting renewable energy and electric-vehicle infrastructure, which will require huge amount of the raw material. Copper prices have gained 17.5% so far this year.
Copper Demand to Remain Strong
After a 7.3% rise in December 2020, China’s industrial production has shot up 35.1% year over year in January-February 2021, well above market consensus of an improvement of 30%. This indicates that the world’s second-largest economy is recovering steadily from the COVID-19 induced slump last year. Further, customs data showed that China’s copper imports have gone up 4.7% year over year in January-February period.
Meanwhile, the IHS Markit Eurozone Manufacturing PMI hit a three-year high of 57.9 in February 2021, following a reading of 54.8 in January. It has trended above 50 since July last year. In the United States, there has been a noted expansion in manufacturing activity over the past nine months. This pickup in manufacturing activity worldwide bodes well for copper demand.
Meanwhile supplies from two major producers Chile and Peru, which together account for about 40% of world copper production, have been volatile due to the impact of the coronavirus pandemic. Chile’s copper output fell 1% in 2020, while production in Peru dropped 12.5%. Further, looming prospects of a strike at Antofagasta’s Los Pelambres mine in Chile triggered supply concerns for copper. Further, the unrelenting nature of the pandemic remains a constant threat for copper miners.
Per the International Monetary Fund’s (IMF) latest projection, the world economy is expected to grow 5.5% in 2021 and 4.2% in 2022, reflecting expectations of strengthening of activity later in the year courtesy of vaccination efforts and additional policy support. The outlook for China is promising with projected growth of 8.1% and 5.6% this year and next year, respectively.
The long-term outlook for copper remains positive as demand is anticipated to improve on investments in electric vehicles and renewable energy, and infrastructure. Meanwhile, grade decline, rising input costs, water constraints and scarcity of high-quality future development opportunities continue to constrain the industry’s supply. This demand-supply imbalance will prop up copper prices, which bodes well for miners. Notably, miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies, which will aid margins in the long haul.
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Copper miners fall under the Zacks
Mining – Non Ferrous
industry, which has gained 91.5% in the past six months compared with the S&P 500’s rally of 21.8%. The industry falls under the broader
Basic Materials
sector, which increased 30.5%.
Per the latest
Earnings Trends
, after remaining in the red for the past four quarters, the Basic Materials sector returned to growth with a rise of 28.1% in earnings for fourth-quarter 2020. The sector is expected to witness growth of 65.7% in earnings in first-quarter 2020, followed by 148.4%, 45% and 10% in the second, third and fourth quarters, respectively. The prospects for 2021 look promising for the sector with an impressive earnings growth projection of 51.5%.
5 Copper Stocks to Watch
We suggest investors to keep an eye on these copper-mining stocks. We have handpicked five such stocks that have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a
VGM Score
of A or B. Our research shows that stocks with such a combination offer the best investment opportunities.
You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Over the past six months, these stocks have outperformed the S&P 500’s rally of 20.5%. This is shown in the chart below. These stocks are anticipated to carry the momentum forward backed by their earnings growth projections.
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Rio Tinto plc
RIO
: Headquartered in London, the U.K., Rio Tinto engages in mining of aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.
The company’s world-class portfolio of high-quality assets and strong balance sheet positions it well to navigate through these turbulent times. Rio Tinto’s disciplined capital allocation supports its ability to sustain production, increase investment in development projects (in high-return iron ore and copper), while delivering superior returns to shareholders. Notably, its copper projects at Resolution (Arizona) and Winu (Western Australia) offer significant growth prospects.
The Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year improvement of 75.5%. The estimate has been revised upward by 53.2% over the past 90 days. The company has a Zacks Rank #1 and a VGM Score of A. Over the past six months, the company’s shares have gained 22.2%.
Southern Copper Corporation
SCCO
: This company based in Phoenix, AZ engages in mining, exploring, smelting, and refining copper and other minerals.
The company has the largest copper reserves in the industry and operates high-quality, world-class assets. Its constant focus on increasing low-cost production is commendable. The company will benefit from its efforts to grow in Peru given that the country is currently the second largest producer of copper globally and holds 13% of the world’s copper reserves. It has growth projects on track that will help achieve its target of producing 1.9 million tons of copper production by 2028.
The Zacks Consensus Estimate for the company’s earnings in 2021 suggests year-over-year growth of 47.8%. The estimate has moved north by 14.7% in 90 days’ time. It has a long-term estimated earnings growth rate of 17.8%. The company’s shares have surged 59.8% in the past six months. It currently has a Zacks Rank #3 and a VGM Score of A.
Kaz Minerals plc
KZMYY
: This U.K.-based company and its subsidiaries engage in mining and processing copper and other metals (gold, silver, zinc) primarily in Kazakhstan and Kyrgyzstan.
The company is well-poised to grow on the back of its large scale, low cost open copper pit mines. Its constant focus on implementing modern technology to develop deposits has aided it in building a portfolio of highly profitable mines with low operating costs. The Aktogay expansion project, which is anticipated to commence production in late 2021, is expected to boost the company’s copper production by 80,000 tons from 2022-27 and 60,000 tons thereafter. The bankable feasibility study for the Baimskaya copper project is estimated to be completed in the first half of 2021. Baimskaya is one of the world’s largest undeveloped copper resources with the potential to be a large scale, low cost open pit copper mine.
The Zacks Consensus Estimate for the company’s earnings for 2021 has moved up 47% over the past 90 days. It indicates year-over-year improvement of 70.7%. Its shares have appreciated 65% in the past six months. The stock has a Zacks Rank #2 and a VGM Score of A.
Freeport-McMoRan Inc.
FCX
: This Phoenix, AZ-based company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining of copper concentrates.
Freeport is conducting exploration activities near existing mines with focus on opportunities to expand reserves. The company will benefit from ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. It recently completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. The company is looking to advance studies for potential expansions and long-term development options for its large-scale sulfide resources at Lone Star. The company’s effective cost management and efforts to reduce debt levels appear encouraging.
The Zacks Consensus Estimate for earnings for fiscal 2021 suggests year-over-year improvement of 326%. The estimate has been revised upward by 21.2% over the past 90 days. Shares of the company has soared 112.4% over the past six months. It has a Zacks Rank #3 and a VGM Score of A. It has a long-term estimated earnings growth rate of 26.6%.
BHP Group
BHP
: Headquartered in Melbourne, Australia, BHP Group engages in exploration, development, and production of oil and gas properties; and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal.
The company has four major projects under development in petroleum, copper, iron ore and potash with a combined budget of $8.5 billion over the life of the projects, which will drive growth in the long run. Efforts to make operations more efficient through smarter technology adoption across the entire value chain will continue to aid in reducing costs, thereby boosting the company’s margins. Its focus on lowering debt will also contribute to growth.
The company has a long-term estimated earnings growth rate of 4%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 77%. The estimate has been revised upward by 23.4% over the past 90 days. The stock has a Zacks Rank #3 and a VGM Score of A. Its shares have climbed 30.8% in the past six months.
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