Copper producers’ earnings including Freeport-McMoRan (FCX), Southern Copper (SCCO), and Glencore (GLNCY) are sensitive to copper prices. As a result, it’s crucial for investors to keep track of copper prices. Prices eventually impact miners’ price action. In the previous part, we looked at the different factors that impacted copper in 1H17. Now, we’ll see what could drive copper in 2H17.
Commodity markets (DBC) are said to be in a surplus when production exceeds demand, while a deficit occurs when demand exceeds production. Some of the leading brokerages, including Goldman Sachs and Citi, are projecting a supply deficit for 2017. Most copper miners also expect copper markets to be in a deficit by the end of the decade. In the coming months, the copper market’s balance could impact copper prices. Chinese demand and supply-side issues could impact copper prices in 2H17.
While copper, like most other commodities, is impacted by the underlying demand-supply equation, it’s also sensitive to geopolitical developments. Notably, we saw some geopolitical tension in the last few days. North Korea’s recent missile tests increased tension in the Korean peninsula. In the coming months, copper investors should keep a close eye on geopolitical developments. Geopolitical issues could impact copper prices (TECK).
In our view, it won’t be easy for copper to hold the $6,000 per metric ton level in the near future. Although supply-side concerns bode well for copper prices, we could see some deterioration in Chinese demand in the coming months.
In the next part, we’ll look at Freeport’s valuation multiples.