Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Weaker copper markets are in focus Tuesday, with bullish outlooks providing good news for Canadian miners like First Quantum Minerals Ltd and HudBay Minerals Inc.
Citi analyst Oliver Nugent sees the recent inventory de-stocking as unsustainable,
“Global copper end-use copper consumption remains strong (+~5% year-over-year relative to 2019 levels) and the ‘call on scrap’ (the difference between end-use consumption and mine supply) remains well above 2011/12 levels, which required $12,000/t prices (in today’s dollars) to rebalance the market. However, refined copper market spreads, premiums and prices have weakened over the past month, which we attribute to growing pains. The global marketplace is presently ‘digesting’ strong demand and resulting boom in industrial commodity prices. The supply chain, from end users to smelters are destocking in the face of higher prices, resulting in consumer and producer inventory hedges being lifted (loosening spreads), driving the refined balance into surplus and lowering physical premiums … At the end-user level, new US and European manufacturing orders are at or around all-time highs, and, critically, inventories in both regions declined to all-time lows in May”
“@SBarlow_ROB Citi: copper destocking unsustainable” – (research excerpt) Twitter
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The Financial Times also weighed in with a bullish feature on copper, noting the importance of the red metal for sustainable power initiatives,
“”We see potential for a multi-decade commodity cycle ahead driven by decarbonization of the global economy and shift to cleaner energy,” says Tal Lomnitzer, a senior fund manager at Janus Henderson. “It has more legs to it than the China boom of the early 2000s. … ‘I also don’t think the China green capex numbers are fully appreciated,’ [Ben Cleary, a partner at Tribeca Investment Partners] adds, ‘it’s $2tn a year for 40 years to get to net zero carbon. The numbers are mind blowing.’ … ‘In terms of trying to decarbonize the world, the only possible way we can do that is through copper. There’s really nothing else that can conduct electricity as well,’ says Jeff Currie, head of commodities research at Goldman Sachs and one of the strongest proponents of the idea that we are in a new supercycle.”
“Copper boom: how clean energy is driving a commodities supercycle” – Financial Times (paywall)
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Morgan Stanley strategists predict a “red-hot” capital expenditure environment as economic re-openings motivate companies to invest in expanding production and supply. The sector with the highest correlation to capital expenditure is communications equipment and infrastructure. The sector will also get a boost from the 5G rollout,
“Life After COVID brings a more digital world. We see several drivers of capex that are positive for Comm Equipment & Infrastructure - with the [spectrum auctions] now complete, communications service providers are significantly boosting 5G capex spending, rural broadband investment is picking up, and hyperscalers continue to invest in cloud, creating additional demand for investment by data centers given occupancy that is already 85-90% in many markets. Additionally … the return to the office is enhancing enterprise spend. Stocks to play capex in Communications Equipment and Infrastructure. In Comm Equipment, we highlight CommScope (COMM) as a 5G, broadband, and hyperscale build beneficiary, Cisco (CSCO) for enterprise build exposure, and Nokia for 5G buildouts in the US, its most profitable region. In Comm Infrastructure we like Towers - SBA Communications (SBAC) and Crown Castle (CCI) - on similar themes and Cyrus One (CONE) in data centers given secular trends toward cloud/hyperscalers.”
“@SBarlow_ROB MS: Communications equipment expected to benefit from ‘red-hot’ capex cycle” – (research excerpt) Twitter
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Newsletter: “It’s not 2000 again, but technology stocks are looking very unattractive” – Globe Investor
Technicals: " The most oversold and overbought stocks on the TSX” – Inside the Market
Diversion: “The Worst Business Ever” – Irrelevant Investor
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