Investment Report: Copper vs. Iron Ore Price Outlook

Market Overview

Both copper and iron ore prices experienced significant declines in June 2024, followed by a slight recovery in July. Investors in ASX-listed copper and iron ore stocks are faced with uncertainty regarding their next moves. Research from Citi indicates a bullish outlook for copper but a less optimistic future for iron ore.

Copper Price Outlook

Short-term Prospects:

1. Temporary Correction: The recent dip in copper prices is seen as a temporary correction driven by weak global manufacturing sentiment and an unwinding of overly bullish investor positions.

2. Policy Stimulus: Anticipated policy stimulus from China, particularly in renewable energy and infrastructure, is expected to boost copper demand. The upcoming Third Plenum policy meeting is likely to announce further investments in these areas, which are crucial for copper consumption.

3. Supply Tightness: Disruptions in global copper supply, including issues at major mines in Panama and Zambia, have contributed to a tightening market. This has already led to significant price increases.

Long-term Prospects:

1. Decarbonization and Growth: Longer-term drivers for copper include cyclical growth and the global shift towards decarbonization. This transition is expected to increase copper demand significantly, with prices potentially reaching $12,000 per tonne by 2025.

2. Renewable Energy and EVs: The surge in electric vehicle production and renewable energy projects will continue to drive demand for copper, making current price levels attractive for long-term investors.

Iron Ore Price Outlook

Short-term Prospects:

1. Muted Demand: The demand for iron ore is expected to remain volatile. Chinese steel demand has been weak due to a slowdown in construction and infrastructure activities, leading to increased steel and iron ore inventories.

2. Economic Headwinds: Economic challenges in China, including the property market crisis and limited new stimulus measures, are expected to keep iron ore demand subdued.

Long-term Prospects:

1. Supply-Demand Imbalance: Despite some short-term recovery due to production cuts, the long-term outlook for iron ore remains bearish. High port inventories and squeezed profit margins at steel mills suggest that iron ore prices may continue to face downward pressure.

2. Policy Impacts: Measures aimed at controlling steel production and addressing the housing glut in China are unlikely to stimulate significant incremental demand for iron ore, further skewing risks to the downside.

Investment Scores

Copper:

- Short-term: 75/100

? - Positive sentiment driven by anticipated policy stimulus and supply constraints.

- Long-term: 85/100

? - Strong prospects based on decarbonization trends and increased demand from renewable energy and EV sectors.

Iron Ore:

- Short-term: 45/100

? - Volatile market with high inventories and muted demand.

- Long-term: 40/100

? - Continued challenges from economic headwinds and policy measures affecting steel production.

Conclusion

Copper presents a more favorable investment opportunity in both the short and long term, supported by strong demand drivers and supply constraints. In contrast, iron ore faces a challenging environment with limited demand growth and high inventory levels, making it a less attractive investment prospect.

?

Reference List

1. Market Index. "Why the copper price will rise and the iron ore price will fall." Retrieved from [Market Index](https://www.marketindex.com.au)

2. ING Think. "Industrial Metals Monthly: Why copper and iron ore prices are diverging." Retrieved from [ING Think](https://think.ing.com).

3. Kitco News. "Copper price surges on supply threat as iron ore shows economic risks." Retrieved from [Kitco News](https://www.kitco.com).

4. Mining.com. "Copper price surpasses $10,000, expected to rise further, says Citigroup." Retrieved from [Mining.com](https://www.mining.com).

5. Mining.com. "Iron ore price surge is latest spike to fuel inflation fears." Retrieved from [Mining.com](https://www.mining.com).

6. CRU Group. "Three things to watch in the iron ore market in 2024." Retrieved from [CRU Group](https://www.crugroup.com).