The COVID-19 pandemic is being hailed as “a crisis like no other” and rightly so, as evident from its crippling impact on the global economy. Given its widespread use, copper has long been considered as a bellwether for the global economy. Consequently, it did not come as a surprise when copper prices took a beating as the pandemic ravaged the global economy in the earlier part of the year. However, the metal soon bounced back courtesy of supply worries, recovery in the industrial activity and strong demand in China, which is the top customer.
Copper’s Journey So Far This Year
Though copper commenced 2020 on a strong note at $6,165 per ton and soon attained a high of $6,300 per ton on Jan 16, this rally was short-lived. The widely-used industrial metal lost steam on account of the coronavirus outbreak in China. With the country implementing containment measures and shutting down production lines to curb the virus spread, demand for the metal was impacted severely. As the outbreak rapidly took shape of a pandemic, the consequent slump in economic activity and plunging oil prices led to copper prices plummeting to a low of $4,617.50 per ton on Mar 23, 2020.
Also, miners had to curtail or stop production in adherence to rules imposed by various governments to stem the spread of COVID-19. Slowdown in industrial activity severely impacted demand for copper. Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index had plunged to a low of 41.5% in April 2020.
However, the index has recovered since June and maintained a reading above 50 (which denotes expansion) for six straight months. The IHS Markit Eurozone Manufacturing PMI has trended above five months as well. Meanwhile, the Official NBS Manufacturing PMI in China came in at 52.1 in November, marking the ninth consecutive month of expansion in factory activity as the economy continues to recover from the pandemic and ramped-up investments.
Demand in China remains strong as it is gradually moving out of the crisis and is working toward full normalization of economic activities. Further, the country’s stimulus program focused on new infrastructure and urbanization will require massive amounts of copper. Notably, China imports of unwrought copper were up 16.2% in November.
Backed by this momentum and hopes of a recovering economy boosted by COVID-19 vaccines, copper prices attained a seven-year high of $7,674.50 per ton on Nov 30. Further, the potential supply disruption from top producer Chile, which has been grappling with the coronavirus situation, and labor disputes also fueled the rally. Copper prices are currently trending above $7,000 per ton, reflecting an increase of 25% so far this year.
A Bright Road Ahead
Barring China, all the world’s major economies will contract during the 2020 calendar year due to the COVID-19 pandemic. The International Monetary Fund’s (IMF) latest forecast anticipates the world economy to contract by 4.4% this year. However, the world economy is expected to grow 5.2% in 2021.
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 probably push copper prices north, which bodes well for miners. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies, which will also drive margins in the long haul.
Industry Performance & Rank
Copper miners fall under the Zacks
Mining – Non Ferrous
industry, which has gained 57% year-to-date compared with the S&P 500’s growth of 16.7%. The industry falls under the broader
Basic Materials
sector, which increased 18.1%.
Per the latest
Earnings Trends
, after remaining in the red for the past three quarters, the Basic Materials sector is expected to return to growth with a projected rise of 6.9% in earnings for fourth-quarter 2020. Despite this improvement, the sector is expected to witness a slump of 21% in earnings in 2020 thanks to decline in the first three quarters. However, the slump is not restricted to this sector alone, as 13 of the 16 Zacks sectors are expected to suffer declines — mostly casualties of the COVID-19 pandemic. The prospects for 2021 look promising for the sector with an impressive earnings growth projection of 40.5%.
5 Copper Stocks to Keep an Eye On
We suggest you 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
.
Year-to-date, these stocks have outperformed the S&P 500’s growth of 16.7%, respectively. This is shown in the chart below.
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These stocks are anticipated to carry the momentum forward backed by their earnings growth projections.
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.
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 six major projects under development in petroleum, copper, iron ore and potash, which will drive growth in the long run.
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 19%. The estimate has been revised upward by 25% over the past 90 days. The stock has a Zacks Rank #1 and appreciated 18% year-to-date.
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 gain 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 is worth mentioning that Peru’s national output is expected grow to 245000 tons in 2022. Notably, Southern Copper’s total investment program in Peru runs to $7.9 billion.
The Zacks Consensus Estimate for the company’s earnings in 2021 indicates year-over-year growth of 35.8%. The estimate has moved north by 29% in 90 days’ time. It has a long-term estimated earnings growth rate of 13.2%. The company’s shares have gained 48.6% so far this year. It currently has a Zacks Rank #3 and a VGM Score of B.
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’s effective cost management and efforts to reduce debt levels appear encouraging.
The Zacks Consensus Estimate for earnings for fiscal 2021 indicates year-over-year improvement of 265%. The estimate has been revised upward by 30% over the past 90 days. Shares of the company has soared 84.8% year-to-date. It has a Zacks Rank #3 and a VGM Score of B.
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 carrying a total budget of $1.2 billion is expected to commence production in late 2021. It 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 anticipated 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 29% over the past 90 days. It suggests year-over-year growth of 18.4%. Its shares have appreciated 17.8% year-to-date. The stock carries a Zacks Rank #3.
Coeur Mining, Inc.
CDE
: This Chicago, IL-based company explores, develops, and produces gold, silver, zinc, and lead properties with five operations in the United States, Mexico and Canada.
A key component of Coeur’s strategy is to create value through exploration. The company is currently executing its largest exploration program in its history. The primary focus of the program is resource expansion and new discoveries, including prospective step-out drilling on certain targets designed to test known boundaries of existing mineralization. Approximately 20 drill rigs continue to operate across the company. In third-quarter 2020, the company achieved a major milestone by commencing construction on schedule on the POA 11 expansion project at Rochester. This expansion will enable the company to operate the mine at full production until 2033. Along with strong operational execution at several sites, the company’s efforts to lower debt will drive results.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings indicates year-over-year growth of 127%. The estimates have moved up 63% over the past 90 days. The company has a Zacks Rank #3 and a VGM Score of B. Year-to-date, the company’s shares have gained 17.7%.
Zacks Top 10 Stocks for 2021
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