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Copper deficit drives price rally, mining stocks benefit

Copper prices (HG=F) have soared to an 11-month high, fueling a rally in mining stocks. RBC Capital Markets Mining Analyst Sam Crittenden joins Yahoo Finance Live to discuss his bullish outlook on the precious metal.

According to Crittenden, the copper rally "has been expected for a few months now." He highlights that supply disruptions during the fourth quarter of 2023 transformed what was anticipated to be a surplus in 2024 into a deficit, which has "driven these higher prices." While sluggish demand from regions like China has been a concern, he notes that as the summer construction season approaches, typically a "strong period," demand concerns could potentially abate, driving copper prices even higher.

However, Crittenden explains that the energy transition stands to be the biggest driver of copper demand going forward.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

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Editor's note: This article was written by Angel Smith

Video transcript

- All right, let's take a look at some of those commodities moving to the upside. Copper prices are steadying after hitting an 11th month high earlier this week. Now the surge in commodity pricing driving mining stocks higher as well, with shares of companies like Teck Resources and Capstone Copper both climbing in the last month. For more on this, we want to bring in Sam Crittenden. He is RBC Capital Markets' Mining Analyst. Just first your reaction to this massive run up that we've seen in copper prices and where copper is trading today.

SAM CRITTENDEN: This has actually been expected for a few months now. So if you go back to Q4 of last year, we saw a number of supply disruptions in the copper space. So there is a large mine in Panama, Cobre, Panama, that went offline. You also saw some production downgrades from some of the larger companies. And that basically took 3% out of our supply estimate for this year. And so that flipped what we had as a surplus coming into 2024 to more of a deficit. And that's really driven these higher prices. People were expecting that for a while and it started-- you're finally starting to see that happen here in the last few weeks.

- And so if this was expected, Sam, what are the kind of top ideas that you're looking towards to continue to implement perhaps in the copper space?

SAM CRITTENDEN: Yeah, so our top picks in the equities will be Teck Resources, as you mentioned, Capstone Copper, and Ivanhoe Mines. Those are three names, we think both-- all three of them have excellent growth prospects for this year and beyond. And those would be our top ideas in the sector.

- In terms of where the pricing, that upside, what does that look like here from current levels?

SAM CRITTENDEN: Yeah. So our price estimate for this year is $4.25 and we have that going to $4.50 for next year. So we don't see those supply disruptions I mentioned easing anytime soon. And so I think you will see constrained supply for the foreseeable future and if demand picks up.

So there are still some concerns on the demand side. China's been a little bit sluggish in recent weeks coming out of the New Year holidays. But if that picks up as we head into summer construction season, typically a strong period over the next few months, we think you'll see that follow-through on the demand side and can drive higher copper prices from here.

- You know, it's really interesting. We had a guest on a few weeks back I want to say who was talking about the correlation between the semiconductor demand that we're seeing and copper because of some of the interconnects that are used. I wonder where that factors into your thesis here?

SAM CRITTENDEN: Yeah. So I mean that's a part of it. But I think broadly, the energy transition is the biggest driver that's going to drive increased copper demand over the next several years. And I mean, I think as we build out renewable infrastructure, that's a key component. Electric vehicles use three times the amount of copper. All of the renewable energy that's being built out is very copper intensive. And data centers and some of the other electronic components certainly are copper intensive as well. So it all feeds into our positive thesis for copper on growing demand over the next several years.