Commodity Trade Mantra

Now Even Citi and Goldman are Highly Bullish on Copper

Citi and Goldman are Highly Bullish on Copper

Now Even Citi and Goldman are Highly Bullish on Copper

– Shuli Ren: Copper is one of Citi Research‘s favorite industrial metals as the broker expects it will see a supply deficit this year for the first time since 2011.

Analyst Ada Gao and team wrote:

In 2016, Chinese copper demand grew strongly at 3-7%, compared to consensus expectations of 1-2% at the start of the year. Looking forward, we see demand slightly moderating, but to a still-solid 3-4%. Mine supply is expected to slow notably, from 3.2%YoY in 2016E to 1.1% in 2017E, thus creating the first supply deficit since 2011. On our forecasts, copper prices will US$2.53/2.76/3.03 per lb in 2017/18/19E, respectively, or US$5,575/6,075/6,675 in US$/t terms.

Copper rose 1.7% overnight to $5,895 per ton.

MMG (1208.Hong Kong) is Citi Research’s top pick among Chinese miners because it is the purest copper play with 83% of its revenue from copper mines. Citi estimates that for every 5% rise in copper prices, MMG’s earnings can rise by 27.9%. By comparison, China Moly (3993.Hong Kong) and Jiangxi Copper (358.Hong Kong) get only 13.7% and 13.8% lift.  Zijin Mining (2899.Hong Kong) gets only a 5.2% boost. (See chart)

Copper miners’ earnings sensitivity

Citi Research

Citi has a price target of 3.60 Hong Kong dollars for MMG, which soared 4.7% today to HK$2.89. Citi’s price target implies an up-cycle of 2.5 times 2017 book. MMG currently trades just above 1.7 times book, or its long-term average.

UPDATE: Goldman Sachs also published a bullish report on copper today. Analyst Max Layton and team wrote:

With workers at the world’s largest mine, Escondida, set to begin a strike tomorrow, and with a new Grasberg export permit yet to be granted after the prior permit expired almost a month ago (January 11), downside risks to supply appear increasingly likely to materialise and translate into copper production losses. Together, these mines were set to produce almost 9% of world mine supply in 2017.

The timing of these disruptions is important since, should they materialise over the next 3 months, they would be occurring over the same period as we expect to see a strong seasonal and cyclical uptick in Chinese demand post Chinese New Year and into 2Q17. This could contribute to a tighter 2Q market, which is normally a period of seasonal deficit (in a balanced market). With exchange copper stocks already very low, these strikes could add to anticipated physical (and spread) tightness during the 2Q.

 

 

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request your views on the above article

  • Silver Savior

    I like to save big amounts of copper pennies and nickels as another investment metal with silver and gold. I am always bullish on copper.

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