Things are ugly this morning fellow Fools. The S&P/ASX 200 Index (Index:^AXJO) is tipped to crash although there’s a glimmer of good news for ASX copper miners.
The futures market is pricing in a 2% crash in top 200 stock benchmark this morning after US stocks suffered their worst beating in three months.
While it’s the US tech darlings like the Tesla Inc (NASDAQ: TSLA) share price that ended up with the bloodiest noses, today’s sell-off on the ASX is likely to be widespread.
ASX copper miners on verge of surge?
The only real piece of good news for Aussie investors to sink their teeth into is a report of a looming copper shortage.
The global copper market could be on the verge of a historic supply squeeze, reported Bloomberg.
The squeeze is being triggered by strong Chinese demand for the red metal and depleting inventories, which plunged to their lowest levels in more than 10 years.
ASX copper underperformer to benefit more
Some experts are forecasting a surge in copper prices and some are even comparing what’s happening now to the early 2000s. Back then, Chinese buyers emptied warehouses of metal exchanges and sent copper rallying to record highs.
Those golden days for copper could be back, if these predictions come through. Panic buying will benefit the Sandfire Resources Ltd (ASX: SFR) share price the most, in my view.
While its peer, the OZ Minerals Limited (ASX: OZL) share price hits new record highs, Sandfire is lagging behind due to its lower quality projects. It’s the more marginal players that tend to benefit more when commodity prices surge.
Mining giants like the BHP Group Ltd (ASX: BHP) share price will also benefit from the copper bull market. But it’s the pure copper miners like Sandfire that are most leveraged to the industrial metal.
Squeezed by high demand and low supply
Chinese demand for copper is growing as its factories ramp up as the world reopens from the COVID-19 shutdown.
China’s Caixin manufacturing purchasing managers’ index for August hit its highest reading since January 2011.
Citigroup believes that copper could hit US$8,000 a ton, which is more than US$1,000 higher than the current price, reported Bloomberg. Copper’s record price is $10,190 a ton.
On the other hand, supply at warehouses is likely to stay lower for longer due to the ongoing disruption to supply chains. There is also a hint of panic hoarding by copper users around the world.
ASX copper miners on new upgrade cycle?
I don’t believe stronger for longer copper prices are yet reflected in consensus forecasts, so this means ASX copper-exposed stocks could be on a cum-upgrade cycle.
This could not be dissimilar to what we saw for iron ore, which benefitted Fortescue Metals Group Limited (ASX: FMG) more than its bigger rivals. FMG’s ore is of a lower quality.
When commodity prices run, it’s the uglier ducklings that turn into swans.
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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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