While U.S. stock markets have come off their 2022 lows, they're still in the red for the year. There has been a sell-off in all risk assets including commodities like aluminum and copper. Stocks of copper mining companies have also followed the metal lower.
Copper is among the most sought-after metals in the commodity space. Copper's long-term outlook looks positive and most analysts have a bullish forecast for the red metal. What are the best copper stocks that you can buy now after the recent stock market crash?
Copper's price prediction in 2022
In April, Cochilco (Chilean Copper Commission) raised its 2022 copper price prediction to $4.40 per pound. It expects global copper markets to be in a deficit in 2022, which would mean demand outstripping supply. However, Cochilco expects copper prices to fall to $3.95 per pound in 2023 as it forecasts a supply surplus of 329,000 tons in the year.
There are concerns about copper markets moving into a surplus in the medium term as key mines like Grasberg in Indonesia, QB2 (Quebrada Blanca Phase 2) in Chile, and Kamoa-Kakula in DRC ramp up their production.
Copper’s long-term forecast looks bullish.
Meanwhile, copper is expected to be in a deficit by the middle of this decade, which makes analysts bullish on its long-term outlook. Goldman Sachs expects copper prices to rise 50 percent by 2025.
Bank of America is also bullish on copper in the long term. Copper demand is expected to get a boost from the transition towards renewable energy and electric vehicles, both of which have higher copper density.
Why should you buy copper stocks now?
Copper stocks look like good buys at these prices for multiple reasons. First, there has been a severe sell-off in copper stocks and many of them have started to look attractive from a valuation perspective. Second, the COVID-19 lockdowns are now easing in China, which accounts for over half of global copper consumption.
Finally, higher crude oil prices support copper prices. The two have a high correlation and diesel is a key raw material in copper mining. Copper tends to rise in a high crude oil price environment.
What are the best copper stocks to buy now?
The earnings and stock prices of copper miners are interwound with copper prices. In a rising metal price environment, all copper stocks do well. However, at these price levels, Freeport-McMoRan, Teck Resources, and Southern Copper look attractive.
Freeport-McMoRan is the largest pure-play copper miner.
Freeport-McMoRan is the world’s largest pure-play copper miner. While several companies mine copper, for many like BHP Billiton and RIO Tinto, copper isn't a key revenue driver and they aren't a good way to play copper.
Freeport-McMoRan produced 3.8 billion pounds of copper in 2021 and expects the production to rise to 4.25 billion pounds in 2022 and 4.45 billion pounds in 2023. Freeport-McMoRan’s gold production is also expected to rise from 1.4 million ounces in 2021 to 1.5 million ounces in 2022 and 1.6 million ounces in 2023.
Freeport-McMoRan has successfully deleveraged its balance sheet and had a net debt of only $5.2 billion at the end of March 2022. The company’s operations are also somewhat derisked now after it reached a settlement with the Indonesian government to set up a smelter in the country.
Teck Resources will join the league of major copper miners.
Canadian miner Teck Resources produces coking coal, zinc, and copper. It also has interests in oil sand projects in Canada. The company would join the league of major copper miners once the QB2 project ramps up production. In their earnings call for the first quarter of 2022, Teck Resources said that the project is 82 percent complete.
Legendary investor Stanley Druckenmiller’s Duquesne Family Office added a new position in Teck Resources in the first quarter of 2022. The fund also increased the stake in Chevron, and so did Warren Buffett’s Berkshire Hathaway. Fund managers continue to pour billions into oil and gas stocks amid rising energy prices.
Southern Copper has the largest copper reserves globally.
Southern Copper has the largest copper reserves among all the miners. The company produced 958,200 metric tons of copper in 2021 and expects the production capacity to nearly double by the end of the decade. It's also a low-cost copper producer, which means that it can survive an industry downturn much better than peers who have higher unit costs.