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Goldman Sachs has good news for ASX 200 copper shares

ASX 200 resource shares have largely outperformed since the global recovery took off. And ASX copper shares could keep running higher.
The post Goldman Sachs has good news for ASX 200 copper shares appeared first on The Motley Fool Australia. –

A happy minner does the thumbs up in front of an open pit copper mine, indicating a surging share price in ASX mining shares

ASX 200 resource shares have largely outperformed the S&P/ASX 200 Index (ASX: XJO) itself since the global recovery took off mid-last year.

That’s particularly true for some of the leading ASX copper shares.

OZ Minerals Limited (ASX: OZL), for example, has seen its share price surge 178% over the past 12 months. And the Sandfire Resources Ltd (ASX: SFR) share price has gained 54%. The ASX 200, by comparison, is up 31% at that same time.

The question many investors are asking now is whether the leading ASX copper shares can continue to outperform in the year – and years – ahead.

And the answer, based on Goldman Sachs latest copper price forecasts, appears to be that they certainly might.

Blue skies ahead for the red metal?

Demand for copper, as you may know, has been growing strongly on several fronts.

First, copper is used in many construction projects, from wiring to plumbing and more. And as global governments and corporations turn to infrastructure and real estate projects to lift their post-pandemic economies, they need more copper to do so.

Second, copper is a key component in electric vehicles, including their wiring and batteries. As the number of EVs – along with home and municipal battery storage – take off, the industry will demand ever more copper. Which spells good news for the copper price, and the share prices of leading ASX 200 copper producers.

According to Goldman Sachs (quoted by the Australian Financial Review) the increased demand for copper (and many other commodities, including oil), is “a change which supply cannot match“.

Goldman’s Jeffrey Currie and colleagues wrote:

The commodity supply is near inelastic in the short run – you cannot dig another mine or grow another crop in a matter of months…

Precisely because commodities depend upon the level of demand, and only the level of demand exceeding the level of supply can create a physical scarcity premium in markets, can we be confident that sustained backwardation is showing us how commodity markets are becoming progressively tighter today.

Backwardation, if you’re wondering, is when the current price of copper (or any asset) is higher than its futures price.

As for its outlook for copper prices, Goldman forecasts the red metal will trade at US$11,000 per tonne inside of 12 months. That’s about 11% higher than the current US$9,884 per tonne.

And from there, Goldman sees at least 2 more years of price gains ahead for copper, forecasting a price of US$11,875 in 2022 and US$12,000 in 2023.

If Goldman is correct, that would put the 2023 copper price up more than 21% from today’s prices. Music to the ears of ASX 200 copper producers…and their shareholders.

ASX 200 listed OZ Minerals and Sandfire Resources snapshot

ASX 200 listed copper producer OZ Minerals has continued to outperform in 2021. Shares are up 1.3% in intraday trading today for a gain of 26.4% year-to-date. OZ Minerals has a market cap of $8.0 billion and pays an annual dividend yield of 1.0%, fully franked.

Sandfire Resources has also continued on its upwards trajectory this year. Shares are up 4.4% in intraday trading today and up 26.2% year-to-date. Sandfire Resources has a market cap of $1.2 billion and pays an annual dividend yield of 3.5%, fully franked.

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Motley Fool contributor Bernd Struben 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.

The post Goldman Sachs has good news for ASX 200 copper shares appeared first on The Motley Fool Australia.

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