FEATURE
There’s Not Enough Copper for a Green Wave. Buy These Miners, Says Jefferies.
The copper market is facing demand from all sides, including the move toward cleaner energy. Here are some mining stocks that are poised to benefit.
The shift to renewable energy is here and only getting stronger, and investors can’t seem to get enough of it. But the industry faces a big problem: it’s heavily reliant on copper and there is a shortage.
So note analysts at Jefferies, who lay out a scenario of big demand for copper, alongside miners poised to benefit, in a recent note to clients. “Based on our analysis, the copper market is headed into a multiyear period of deficits, in part due to secular demand in renewable energy and EVs [electric vehicles],” say a team led by Christopher LaFemina.
The analysts predict higher prices are coming and will “lead to substitution to other materials,” needed to bring the market to balance.
That growing demand has had two key sources. The first, a shift from coal and gas power to wind and solar, works in copper’s favor because those systems require five times more copper than conventional ones. For example, offshore wind takes around 15 metric tons per megawatt of installed capacity, while onshore wind and solar take around 5 metric tons and conventional power one.
The analysts expect copper demand in renewable energy to rise from 991 kilotons in 2020 to 1.9 megatons in 2030.
The other source of copper consumption is electric vehicles, which take around 83 kilograms on average, while charging points need 10 kilograms of copper. LaFemina expects copper demand will rise to 1.7 megatons in 2030 from 170 kilotons in 2020.
In their bear case for copper itself, the analysts see the market “adequately supplied until 2025 before deficits kick in,” but even so the path of least resistance is higher for the metal. “If our assumptions are correct, the squeeze higher in copper is a question of ‘when’ rather than ’if,’ they say.
“The price at which the demand elasticity is great enough to balance the market depends on the magnitude of the implied deficits, but in our base and bull case scenarios it is not unreasonable to assume the copper price would rise to at least $5.00 per pound for an extended period before demand would adjust enough to balance the market. This point is very much underappreciated, in our view,” say the analysts.
As for stocks to play this copper demand, Jefferies upgraded Antofagasta (ticker: ANTO.UK) and Glencore (GLEN.UK) to Buy from Hold, and reiterated Freeport-McMoRan (FCX) and First Quantum Minerals (FM.Canada) as top picks. Other miners with bullish ratings are BHP Group (BHP), Rio Tinto (RIO), and Vale (VALE).
Email: editors@barrons.com
I am still waiting for last years 