What this unprecedented short squeeze signals for ASX copper stocks

ASX copper stocks have been benefiting from soaring demand for the red metal amid limited new supplies.

| More on:
Two excited mining workers in yellow high vis vests and hardhats shake hands to congratulate each other on a mineral discovery

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX copper stocks have been among the best performers in the market in 2024.

And while most copper miners are sliding today, alongside the broader market, the future continues to look bright as the red metal surged another 2.0% overnight to US$10,424 per tonne.

That's right near all-time highs. And it sees the red metal up 28% from this time last year, when that same tonne was trading for US$8,122.

As for that strong performance, shares in S&P/ASX 200 Index (ASX: XJO) copper stock Sandfire Resources Ltd (ASX: SFR) are up 57% over the past six months.

And the Aeris Resources Ltd (ASX: AIS) share price has surged 100% over the half year, compared to a 12% gain posted by the All Ordinaries Index (ASX: XAO).

Then there's dual-listed, Canadian-based Capstone Copper Corp (ASX: CSC).

Capstone Copper only began trading on the ASX on 8 April. Since then shares have leapt 20%, compared to a 1% gain posted by the All Ords over this same period.

What's boosting copper prices?

ASX copper stocks have obviously been benefiting from fast-rising copper prices.

The red metal has been supported by strong global demand growth, even though supplies have been disrupted at several major mines worldwide.

Expected interest rate cuts from major central banks, including the US Federal Reserve, could further fuel medium-term demand.

Longer-term tailwinds for ASX copper stocks are likely to come from the globe's ongoing transition to electrification. The highly conductive red metal is a critical component in EVs, the new generation of AI-enabled data centres, and much more.

And despite the copper price already having surged 28% over 12 months, Goldman Sachs believes the metal is due to gain another 15%. The broker forecasts an end-of-year price of US$12,000 per tonne.

So, what's all this about a big short squeeze?

I'm glad you asked!

ASX copper stocks and the big short squeeze

If you follow futures markets, you may have noticed the unprecedented short squeeze that has sent copper prices surging on the Comex over the past few days.

If you're unfamiliar with Comex, it stands for the Commodity Exchange Inc.

The United States-based Comex is the primary futures and options market for trading base and precious metals. Ordinarily, the spread on copper futures on Commex and the price for copper on the London Metal Exchange (LME) vary by only a few dollars.

But as Bloomberg reports, the premium for New York copper futures has rocketed to US$1,200 per tonne, which has never been seen before.

This bodes well for the demand outlook for ASX copper stocks.

The short squeeze reportedly comes in part as traders pile in amid forecasts that copper supply growth will likely lag demand growth for years to come.

According to Matthew Heap, a portfolio manager at Orion Resource Partners:

The broader story is that there are new investment funds that are boosting their exposure to copper for a multitude of reasons, and while that's a global trend, a huge amount of that investment has been heading to Comex.

While ASX copper stocks may not be tapped to fill the immediate supply needs, the dynamics at play here tell me they're well-positioned for the year and potentially years ahead.

Commenting on the unprecedented Comex spread, Jia Zheng, head of trading at Shanghai Dongwu Jiuying Investment Management, said (quoted by Bloomberg), "The short squeeze is set to continue as traders might not be able to ship enough metal from either Chinese bonded warehouses or from Europe ahead of the delivery date."

This certainly goes a long way toward explaining why BHP Group Ltd (ASX: BHP) is so keen to acquire copper-focused Anglo American (LSE: AAL). If successful, this would see BHP become the largest ASX copper stock and, indeed, the biggest copper producer in the world.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Resources Shares

A yellow sign with the words 'Changes ahead' on a city backdrop, indicating volatile share price movement
Resources Shares

Buying Rio Tinto shares? Here's why this 'world-class' lithium project could be back on track

Rio Tinto’s lithium ambitions have been largely on hold since 2022. But is that about to change?

Read more »

A happy miner pointing.
Resources Shares

This fund returned 30% per annum for 3 years. Here are the ASX shares it's buying now.

These little known players could be gems, this fundie says.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Resources Shares

ASX 200 stock nosedives 10% on new lithium play

Investors have hit the sell button after news from the mining royalty company this morning.

Read more »

Two smiling men in high visibility vests and yellow hardhats stand side by side with a large mound of earth and mining equipment behind them smiling as the Carnaby Resources share price rises today
Broker Notes

See why this broker just upgraded South32 shares to a buy

Commodity prices continue to create tailwinds for ASX stocks.

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

Why the best dividend days may be over for Fortescue shares

I’m not expecting huge payouts from Fortescue in the future.

Read more »

A worker in hi vis gear holds his hand up saying no.
Resources Shares

BHP share price slips as union takes legal action

The union move could impact 1,700 workers.

Read more »

A female employee in a hard hat and overalls with high visibility stripes sits at the wheel of a large mining vehicle with mining equipment in the background.
Resources Shares

If I buy 1,000 Fortescue shares, how much passive income will I receive?

Do Fortescue shares have a lot of dividend potential?

Read more »

2 people at mining site, bhp share price, mining shares
Resources Shares

Why is the BHP share price tumbling on Wednesday?

ASX 200 investors are bidding down the BHP share price today. But why?

Read more »