Key Takeaways:
HSBC Research raised its price target on CHINFMINING (01258.HK) to HKD18.6, identifying a buying opportunity as Chinese copper stocks lag a sharp rally that saw LME prices break above $14,000 per tonne in May.
"The structural bull case for copper remains intact, supported by strong demand from electrification and the energy transition," the bank said in a research report. HSBC noted that despite strong fundamentals, Chinese copper equities have seen only moderate gains due to what it sees as overstated concerns about a global demand slowdown and capital rotation into AI sectors.
The bank's upgrade of CHINFMINING is based on the view that higher sulfuric acid prices, a byproduct of copper smelting, will be an earnings tailwind for the company. The price target was increased for CHINFMINING, while a Hold rating was maintained for JIANGXI COPPER (00358.HK). HSBC also noted that MMG (01208.HK) has the highest earnings sensitivity to copper prices among the companies it covers.
The call comes as copper prices have surged on supply risks, including an emergency energy decree in Peru and disruptions to the sulfur trade in the Middle East. LME copper recently touched $14,196.50 a ton, nearing its all-time high. However, the rally has shown signs of cooling, with prices retreating to $13,938.50 as some Chinese buyers held off on purchases, according to a report from Cofco Futures Co.
HSBC believes the market is underappreciating the resilience of Chinese demand, pointing to domestic inventory drawdowns and stable Yangshan copper premiums as evidence. This contrasts with some market data showing a recent 10 percent increase in on-warrant copper inventories on the Shanghai Futures Exchange to 97,001 tons.
For other miners, HSBC suggested market worries about sulfur supply and cobalt export quotas for CMOC (03993.HK) are "excessive." It noted that ZIJIN MINING (02899.HK)'s earnings have a lower immediate sensitivity to copper due to its significant gold business, but the bank continues to favor its diversified profile.
The divergence between the commodity and equity performance presents a key decision for investors. The focus will now be on whether capital rotates back into these mining stocks to close the valuation gap. Investors will be watching for any signs of sustained demand from China to support the next leg of the rally.
This article is for informational purposes only and does not constitute investment advice.
