Why Saxo Market's Q4 outlook bodes well for ASX copper shares

Copper is among the metals in high demand as the world moves to decarbonise.

Leading ASX copper shares have handily beaten the benchmark returns over the past 12 months.

Sandfire Resources Ltd (ASX: SFR), for example, is up 36% over the past full year.

Meantime, S&P/ASX 200 Index (ASX: XJO) listed copper giant Oz Minerals Ltd (ASX: OZL) has seen its share price soar 56% over the same time. A time that saw the ASX 200 itself post a 22% gain.

Both copper producers enjoyed strong tailwinds from soaring prices for the red metal for much of the year.

On 5 October 2020, 1 tonne of copper was trading for US$6,528. It went on to hit record highs of US$10,445 per tonne on 12 May, a gain of more than 60%.

Since then, prices have edged lower, currently at US$9,250 per tonne. And so have the share prices of the ASX copper miners named above.

Oz Minerals' share price is down 17% since copper hit all-time highs on 12 May. And Sandfire's share price has dropped 27%.

But, according to Saxo Markets' Q4 2021 Quarterly Outlook, the ASX copper miners could be in for a rebound over the remainder of the calendar year.

Two workers working with a large copper coil in a factory.

Image source: Getty Images

Saxo's bullish outlook for commodities

In the just released market outlook, Saxo's head of commodity strategy Ole Hansen says, "After what has already been a strong year for commodities, we maintain a bullish outlook into Q4 and beyond."

Hansen notes that commodities will, in general, face some headwinds as the world's biggest economies start to taper their pandemic era fiscal and monetary largesse over the coming months. However, he adds, "Supply constraints will, in our opinion, continue to support prices despite a slower growth trajectory."

Part of copper's strength is that it's a critical metal in the world's march to low carbon energy sources, used in both batteries and wiring.

According to Hansen, "We continue to see underlying strength resulting in higher prices for 'green' metal, a group that … also includes copper."

And copper supplies, like most commodities dug from the ground, can't be ramped up quickly to meet any rapid growth in demand.

"The supply chains," says Hansen, "are inelastic due to a lack of support for permitting, board approval and a lack of capital flowing into the 'dirty' production side of the equation due to ESG priorities."

What does this mean for ASX copper miners?

Numerous factors determine the share price movements of ASX resource shares. But the price of the resources they mine from the earth certainly ranks high on that list.

And, if Saxo Markets' forecast is correct, ASX copper shares could see another solid lift over the last 3 months of 2021.

According to Hansen:

Copper's surge to a record high earlier this year was, to a certain extent, being driven by the reflation trade. Until it deflated during the third quarter, this had provided a key source of support. While supply constraints lifted nickel and aluminium, copper is waiting for a renewed and strong pick-up in both physical and investment demand, with the speculative length the leanest it has been in more than a year.

A break back above $10,000 would likely be the signal that triggers a fresh move towards new all-time highs. We believe that journey will resume sometime during the final quarter.

A break back above US$10,000 per tonne would certainly be welcome news to shareholders of ASX copper shares like Sandfire and Oz Minerals.

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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