How Saxo Market’s Q3 outlook is good news for ASX copper shares

Massive global infrastructure projects and inflation fears are driving commodity prices higher.

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Record copper price ASX shares A happy minner does the thumbs up in front of an open pit copper mine, indicating a surging share price in ASX mining shares

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ASX copper shares have been enjoying some strong tailwinds since March 2020 as the price of the red metal has rocketed to near record highs.

At the time of writing, copper is trading for US$9,388 (AU$12,353) per tonne. While down from early May’s US$10,417 per tonne, that’s still almost double the US$4,790 per tonne copper was fetching on 20 March 2020.

And it’s not just ASX copper shares enjoying the higher price of the commodity they dig or grow from the dirt.

The global commodity sector has now gained for 5 quarters in a row. And more gains could be in the pipeline.

More tailwinds ahead for ASX copper shares

Saxo Market’s Ole Hansen, head of commodity strategy, forecasts continued growth for the commodity sector. Though not at the same blistering pace witnessed since the recovery from the pandemic led market meltdown last year.

In Saxo’s Q3 2021 Quarterly Outlook report, released this afternoon, Hansen writes:

Since the pandemic and global lockdown lows in March last year, the Bloomberg Commodity Spot index, which tracks the front-month futures performance of a basket of raw materials from energy to metals and agriculture, has surged higher by 75% to reach a ten-year high.

Hansen notes that many analysts are speculating that the world has entered a new commodity super-cycle. The commodity sector is prone to occasional super-cycles because, “Supply and demand imbalances take time to correct due to high start-up capex for new projects, along with the time needed to harness new supply.”

The copper sector offers a good example. Hansen says it can take 10 years from decision to production in the copper industry. He adds, “Such long periods often cause companies to postpone investment decisions while waiting for rising prices, at which point it is often too late to avoid further price gains.”

The most recent commodity super-cycle was driven by China’s rapid growth and subsequent massive new demand for raw materials, which “helped drive the Bloomberg Commodity Spot index up by almost 350%”. That super-cycle didn’t come to an end until the GFC crippled financial markets in 2008.

As for the demand for metals like copper?

Narrowing in on copper and other metals, Saxo’s outlook remains decidedly bullish for the upcoming quarter.

According to Hansen:

In metals, the combination of increased government spending on infrastructure and decarbonisation will continue to drive strong demand for metals including copper and iron ore – the key ingredient to make steel – as well as aluminium, zinc and even semi-industrial metals such as silver and platinum.

Also supporting commodity prices (and offering tailwinds to ASX copper shares) is Saxo’s forecast that inflation will rise faster than most central bankers are predicting. And that higher prices will be longer lasting rather than a flash in the pan.

Hansen says this will create “continued demand from investors as they will need real assets such as commodities to hedge their portfolios”.

2 leading ASX copper shares

There are a number of quality ASX copper shares investors can research.

For the purposes of this article, we’ll focus on 2 of the top copper producers.

First up, Oz Minerals Limited (ASX: OZL). Oz Minerals is part of the S&P/ASX 200 Index (ASX: XJO) and has a market cap of $7.44 billion. It also pays a dividend yield of 1.1%, fully franked.

The Oz Minerals share price has far outperformed the benchmark, with shares up 104% over the past 12 months and up 16% year-to-date.

Our second leading ASX copper share is Sandfire Resources Ltd (ASX: SFR), which has a market cap of $1.22 billion. Sandfire pays a dividend yield of 3.2%, fully franked.

The Sandfire share price has also outperformed, with particularly strong gains in 2021. Over the past 12 months, Sandfire shares are up 34%, with shares up 25% year-to-date.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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