Those bullish bets follow a supply setback that’s just a few months old, with key mines running into trouble at the end of last year. The upshot is that what had looked like a clear case of excess supply has now morphed into a likely deficit, according to Todd Warren, a portfolio manager at Tribeca.
“We see a very strong trade in the foreseeable future, primarily because of the supply challenge,” Warren said in an interview.
Matthew Langsford, who runs a A$180 million ($120 million) natural resources fund at Sydney-based Terra Capital, said he now sees “at least 50% upside” in prices by the end of 2024.
Both Terra and Tribeca are in the process of adding to their holdings of copper stocks, Warren and Langsford said.
Any lingering expectations of surplus supply have now “evaporated,” and been replaced with the prospect of a “significant deficit,” Langsford said. The development underscores “the fragility of supply in markets where there has been very little capex for new projects,” or where even sustaining and maintaining existing operations has been a challenge over the past decade, he said.
Supply shocks can be a double-edged sword for mining investors. Last year’s closure of the Cobre Panama mine, which produces 1.5% of global copper supply, wiped out more than half the market value of First Quantum Minerals Ltd., which is the Canadian company that owns the operations. Meanwhile, other miners stand to benefit as the market tightens up in the wake of the closure.
Overall, copper gained only 2% last year, following a 14% decline in 2022. So far this year, the base metal’s price is little changed, with a metric ton of copper costing around $8,600, according to prices on the London Metal Exchange.
Bullish bets for 2024, however, are continuing to mount.
Pierre Andurand is telling investors in his hedge fund that he expects copper prices to rise this year despite positions in the base metal backfiring in 2023, according to a letter seen by Bloomberg. Decreasing ore grades, rising costs, water scarcity and social unrest are now impacting balances, the letter said, adding that price dips therefore represent opportunities to buy.
A representative for Andurand Capital Management, which manages $1 billion, declined to comment.
Robert Friedland, the billionaire founder of Ivanhoe Mines Ltd., said recently he wouldn’t be surprised if the price climbed to $9,500 a metric ton this year, as interest rates come down and demand from China heats up.
Terra’s top copper stock picks include NGEx Minerals Ltd., which soared more than 130% last year and is up about 15% so far in 2024. The hedge fund manager has also been buying Capstone Copper Corp., which gained more than 30% in 2023 and has started this year about 3% higher. Warren at Tribeca said his favorite copper stocks include Freeport-McMoRan Inc., which added 12% last year, but has started 2024 down about 7%.
Copper’s longer-term supply dynamics underpin its appeal, given its role in feeding the technology needed for the green transition, according to Renaud Saleur, who manages Anaconda in Geneva. And though mining remains controversial due to its environmental fallout, copper is proving a better bet than more traditional transition assets such as wind and solar, with the S&P Global Clean Energy Index down more than 20% last year.
Anaconda has been buying Lundin Mining Corp., which rose more than 30% in 2023, as well as Freeport-McMoRan, Saleur said.
“Industrial metals ended the year with a rally in prices in December. Copper and aluminum markets likely have room to grow in terms of price movement as supply disruptions coupled with a steady demand outlook push up prices,” according to Yuchen Huo, a BloombergNEF metals analyst.
For miners with existing operations, copper’s tight supply dynamics are good news. But given the long-term demand projections, there’s a conspicuous lack of investment in new supply. That gap is so big that some manufacturers even warn it may put the energy transition at risk.
With all that in mind, investors are betting the supply odds are ultimately stacked in copper’s favor. The upshot is that commodities companies are currently “in an ongoing pursuit of increasing their copper exposure,” Tribeca’s Warren said.
Copper “should have a sustained bull market,” Terra’s Langsford said. With “growing demand and constrained supply, I think you have the likelihood of dramatic price upside in the next two or three years,” he said.
(By Sheryl Tian Tong Lee)