The outlook for demand on Chinese copper stocks is shining bright, with a late surge providing the best yearly rally in five years for the country's biggest producer, Jiangxi Copper Co.
What has ailed copper for most of the year largely dissipated in December as China and the U.S. signed an interim trade accord that will balance the global economy, and as Chinese data showed growth in demand.
The London benchmark price, a barometer for the broader economy due to the large use of the metal in building and power transmission, ended with a sixth consecutive gain last week, its best run in over two years.
Meanwhile, the country's manufacturing purchasing managers index (MPMI) indicated a second consecutive month of growth in December.
Nonetheless, recent stock gains can discourage some investors, and there are no clear-cut winners. The outlook for companies mining ore might be safer than for metal-refining smelters, who are saddled with overcapacity and low spreads. Many of the big copper companies in China are active in both areas.
While the smelting industry has suggested that this year it will slash production to save treatment fees that have plummeted to nearly seven-year lows, it is the raw material producers who can be best placed to benefit from resurgent demand.
Wang Chen, a partner at Dumfounds Investment Management Co. in Shanghai, said stocks such as Jiangxi Copper, China's No. 1 smelter and second-largest producer, still have room to rally.
According to analysts, copper prices have dropped to near-cost and there are few downsides. The easing in trade and global monetary tensions will also jack up demand and metal prices, they said.
For 2020, the Goldman Sachs commodities team is the most bullish on copper, one of a cluster of banks that expects big returns from metal assets.
Citigroup estimates that Chinese copper consumption will grow 2.6 percent this year after barely rising in 2019 steered by increases in grid investment and automotive demand.
The global economy is moderately making an ascent amid a host of monetary easing, lifting demand for raw materials including copper, said Yang Kunhe, an analyst at Pacific Securities Co.
Yang recommends buying stocks from mainland listings like Jiangxi Copper, Zijin Mining Group Co. and China Molybdenum Co. He prefers these firms to pure copper smelters like Tongling Nonferrous Metals Group Co., who suffer from low profitability as a result of shrinking global supply of raw materials.
