The rally in ASX copper shares could extend for a few more months as experts believe the metal is heading to fresh 10-year highs.
That’s not only great news for ASX copper producers, but there’s another less obvious group of ASX shares that look set to ride this uptrend. I’ll touch on that more later.
Why copper prices could set new record highs
The benchmark copper price on the London Metal Exchange jumped 1.8% to US$9,379.50 a tonne on Monday night.
It’s now within striking distance of its February high of US$9,617 – it’s highest point in a decade.
Commodity analysts believe the path of least resistance is up for the commodity, reported Reuters.
ASX mining shares riding on Dr Copper
The bullish sentiment largely explains why the OZ Minerals Limited (ASX: OZL) share price and Sandfire Resources Ltd (ASX: SFR) share price have outperformed. These pure-play copper miners have outrun the S&P/ASX 200 Index (Index:^AXJO) in the past six months.
The BHP Group Ltd (ASX: BHP) share price also benefits from rising copper prices. But its diversified business means it will not enjoy the full benefit of the rallying copper price.
As mentioned earlier, there’s another group of ASX shares that have been largely overlooked by copper bulls. These are ASX gold shares.
Copper offsets weakness in the gold price
Copper and gold are normally found together. ASX gold miners sell the copper to lower to cost of production for their gold operations.
This means a high copper price will allow miners like the Newcrest Mining Ltd (ASX: NCM) share price to expand their margins. This may in effect offset the weakening gold price.
Copper price forecasts
Saxo Bank analyst Ole Hansen believes it’s only a matter of time before copper hits US$10,000 a tonnes, reported Reuters.
Citigroup echoed a similar view as it’s forecasting it to hit US$10,500 within three months.
There are a few reasons for their upbeat outlook.
What’s driving copper prices higher
The acceleration in global economic growth bodes well for industrial production. Copper is a key input in that process.
The recent drop in US government bond yields and the greenback is also helping. These events aren’t only creating a tailwind for shares, but also make copper more attractive. Commodity prices, which are expressed in US dollars, tend to more in opposite direction to the greenback.
Throw in ebullient markets, tight supply and a strong demand outlook, and you can see why the experts at ING are also expecting copper to test the February highs.
We also shouldn’t forget that the electric vehicle craze, which sent ASX lithium miners like the Galaxy Resources Limited (ASX: GXY) share price and Orocobre Limited (ASX: ORE) share price soaring, bodes well for copper too.
However, it isn’t all good news for copper. ING pointed out that the current restocking cycle is ending and the crackdown on easy credit by the Chinese government may dampen enthusiasm for the metal, reported Reuters.
But I don’t think these headwinds will be enough to derail the copper rally – not in the near-term at least.