Why ASX copper shares are coming under pressure

With the red metal in retreat this week, we take a look at what’s been happening with copper and the companies that mine it.

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ASX copper shares are largely in retreat this past week.

This comes after copper producers, broadly, enjoyed a banner 12 months heading into June.

S&P/ASX 200 Index (ASX: XJO) listed copper giant Oz Minerals Limited (ASX: OZL), for example, gained more than 160% from the end of May 2020 through to the beginning of June this year.

Rival ASX copper share, Sandfire Resources Limited (ASX: SFR), saw its share price rise more than 60% over that 12-month period.

What’s happening with copper prices?

While numerous factors determine a company’s share price, resources stocks are for obvious reasons highly influenced by the price of the metals they dig from the ground.

ASX copper shares Sandfire and Oz Minerals received a welcome tailwind as the price of copper soared from US$5,376 (AU$7,468) per tonne on 1 June 2020 to some US$10,245 per tonne on 1 June this year. That, after copper hit record highs of US$10,460 per tonne in mid-May.

But copper prices have been sliding since June. And prices fell particularly hard this week.

Copper prices fell 3.6% over the past 24 hours to currently be trading at US$9,316 per tonne. On Monday, when most Aussies were enjoying a day off courtesy of Queen Elizabeth, that same tonne of copper was worth US$9,972.

A bit of back of the napkin maths tells me that that’s a drop of 6.5% since 14 June.

Analysts point to the world’s 2 largest economies as driving this week’s decline.

The Federal Reserve – central bank to the United States, the world’s biggest economy – indicated this week that interest rates may rise sooner than originally forecast. Quantitative easing (QE) may also be scaled back sooner than the market had expected. Among other impacts on the commodity markets, this saw the US dollar rise.

China, the world’s number 2 economy, is also putting downward pressure on commodities, saying it will release metals from government held reserves to help suppress recent price surges.

Michael Cuoco is the head of hedge-fund sales for metals and bulk materials at StoneX Group. According to Cuoco (quoted by Bloomberg):

Risk-off is front and centre thanks to the hawkish words from the Fed, which came on the back of the Chinese government-led directives over prior weeks. Central-bank stimulus helped the markets gather steam in the spring of 2020, and now there is a bit of a macro reset.

How have these 2 ASX copper shares weathered this week’s price falls?

With copper down 6.5% since Monday, it’s no surprise to see ASX copper shares in retreat this week. A week that’s seen the ASX 200 gain 1.5%, at the time of writing.

Sandfire Resources, which is up 0.2% in afternoon trade today, is down 7.2% over the past 5 days.

The Oz Minerals share price has had an even worse week. Down 0.8% in intraday trading, Oz Minerals shares have sunk 10.5% over the past 5 days.

To keep things in perspective, despite the recent price retrace, ASX copper shares have still broadly outperformed over the past full year. Oz Minerals shares are still up 119% over the past 12 months, while Sandfire remains up 42%.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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