Why ASX copper shares could have more market-beating gains ahead

Copper's non-corrosive and highly-conductive nature makes it a hot commodity in today's fast changing world.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published June 7, 2021 1:32 pm AEST

ASX copper shares have broadly enjoyed a strong year on the back of rocketing copper prices.

How strong?

Sandfire Resources Ltd (ASX: SFR) has gained 41% over the past 12 months.

Oz Minerals Limited (ASX: OZL) has rocketed 145% higher over that same time.

And these aren't small-cap ASX copper shares we're talking about here. Sandfire has a market cap of $1.3 billion, while Oz Minerals' market cap is some $8.4 billion.

For some comparison, the S&P/ASX 200 Index (ASX: XJO) has gained 19% since this time last year.

A smiling miner wearing a high vis vest and yellow hardhat does the thumbs up in front of an open pit copper mine. — Image source: Getty Images

What's driving the big rallies for ASX copper shares?

While not all ASX copper share have witnessed similar market-beating gains, producers of the red metal have enjoyed a strong tailwind in the form of rocketing copper prices.

On 8 June 2020, a tonne of copper was trading for US$5,700 (AU$7,355). Today that same tonne is worth US$9,955. That's down a bit from the US$10,460 peaks copper reached in mid-May, largely due to some efforts by China to halt soaring commodity prices. But it's still up 75% year-on-year.

And those 75% gains go straight to the bottom line for ASX copper shares.

Why this copper rally has legs

The performance of ASX copper shares over the past 12 months is water under the bridge.

Looking at what's yet to come, the demand for copper is expected to continue growing as the world looks to decarbonise and turns to EVs and renewable energy sources. Both EVs and solar installations require far more copper than conventionally powered sources.

Meanwhile, new copper supplies remain limited, opening the door for leading ASX copper shares to potentially continue to outperform.

According to Richard Adkerson, CEO of copper giant Freeport-McMoRan Inc (quoted by Bloomberg):

In the short-run, actions can have an impact, commodity trading can have an impact. But the commodity market for copper today is extraordinarily strong. Both on the demand side, we've got new sources of demand, and supply scarcity is a real factor in the marketplace…

It's hard to find another commodity that has the supply side support that copper has. And now we've got a new era of copper demand where we're not just relying on China's growth for new demand but lots of things for growth outside of China.

If the global copper supply does remain subdued in the face of strong demand, ASX copper shares could be in for another run higher.

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