According to a report from HSBC Research, copper prices have fallen 12% since mid-May due to weak demand on the mainland, causing copper industry companies' stock prices to fall 17%. However, high-frequency data (such as inventory and activity of processing companies) suggests that the situation has improved, reflecting that destocking is in progress. The bank believes that concerns about demand have been reflected in price adjustments, and it is now time to re-examine the industry and be bullish on CMOC Group Limited (03993.HK) and Zijin Mining Group Co., Ltd. (02899.HK).
HSBC Research believes that the trend of copper prices is closely related to the economic atmosphere and demand outlook on the mainland, and that in the first half of this year, the trend of the Hang Seng Index was also closely linked to the trend of copper prices, which had not happened in the past. The bank expects that the rise in energy consumption will drive growth in grid investment, solar and wind power generation capacity will continue to be strong, production of electric vehicles will continue to be stable in the price war, and manufacturing activity will increase and data centers will expand. In addition, it is expected that the Chinese government will launch more stimulus measures in the second half of the year to support real estate and investment growth, and the beginning of the loose cycle in the United States will help support copper demand. Therefore, it is expected that after destocking ends, copper prices are likely to rebound in the fourth quarter of this year.
The bank also mentioned that the market is currently still waiting for more positive indicators such as a decrease in inventory or an increase in operating rates of downstream processing companies. However, it is believed that concerns about demand in the mainland are excessive, and it is now time to re-examine the industry. The bank continues to prefer CMOC Group Limited, because the company's expansion leads to faster growth in copper production than its peers; and is also bullish on Zijin Mining Group Co., Ltd. due to its diversified mineral portfolio, which brings stable growth and its favourable investment in gold. The target prices for these two H-shares are maintained at HKD 9.4 and HKD 20.9, respectively, with a "buy" rating unchanged.