Multiple supply disruptions and healthy demand will support continued strength in the copper price, Wilsons Advisory says, with the broker naming some key players on the ASX to keep an eye on.
The team at Wilsons said in a note to clients this week that, after a three-year downturn in the resources sector, with the exception of gold, momentum appears to be turning positive, with several trends underpinning a revival.
Several tailwinds for demand
Wilsons said the macroeconomic environment is becoming more supportive for resources, with rate cuts in the US likely to stimulate global commodity demand, and a weaker US dollar offering a tailwind for US dollar-priced commodities.
There are also several industry-specific drivers, including growth in data centre builds and associated infrastructure to support the artificial intelligence boom, the onshoring of supply chains and the build-out of national commodity stockpiles, and a renewed interest in defence spending.
At the same time, supply dynamics remain a key differentiator across commodities – with tightening supply conditions supporting the rallies in metals like copper and aluminium.
On copper specifically, Wilsons said there were reasons to be bullish on pricing going forward.
Copper remains one of our preferred commodities, supported by healthy demand and increasingly constrained supply. Prices recently hit record highs (US$5.10/lb), driven by multiple supply disruptions which have tightened the physical market, however, we continue to see upside to the copper price over the medium-term.
The energy transition and the move towards electrification continue to support long-term demand for copper, Wilsons said, while supply constraints "remain significant".
Significant operational disruptions at Freeport McMoRan's Grasberg mine- the world's second-largest copper mine, along with disruptions at Kamoa-Kakula, Cobre Panama, and QB, have exacerbated market tightness in an already constrained market. Moreover, declining ore grades, deeper mines, rising costs, the lack of large-scale projects in the pipeline – alongside sovereign risks – are all likely to limit new project delivery and push the cost-curve higher over time.
ASX-listed companies to watch
Among ASX-listed copper producers, Wilsons said their preferred pick in the sector was Sandfire Resources Ltd (ASX: SFR) despite it trading above the current price target from Canaccord Genuity of $15.
As the only pureplay ASX 100 copper producer, Sandfire has a best-in-class track record of operational delivery, which continues to underpin reliable leverage to the copper price.
Wilsons said outside of the S&P/ASX 100 Index (ASX: XTO), Canaccord has buy ratings on Hillgrove Resources Ltd (ASX: HGO), with a price target of 5 cents, compared to the current price of 3.4 cents, and Capstone Copper Corp (ASX: CSC), which Canaccord has a price target of C$14.50 ($15.80) on, compared to the current price of $13.44.
Hillgrove operates the Kanmantoo copper mine in South Australia, where it recently upgraded the mineral resource to 160,000 tonnes of contained copper and 120,000 ounces of gold.
