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Copper To Tumble Below $5,000/t?! It May Be Time To Sell Antofagasta plc, BHP Billiton plc & Kaz Minerals plc…

Another commodities report, another slew of worrying data for the world’s major copper miners.

The brokers over at Bank of America-Merrill Lynch are the latest candidates to cast a bearish view on the metals markets, the institution commenting this week that “the relentless multi-year bear market continues to unfold in the mined commodities as demand growth has been structurally and cyclically challenged,” adding that “producers have also not fully adjusted to China’s key industrialisation period drawing to a close.”

Bank of America singled out copper as a major casualty of deteriorating Chinese consumption, noting that prices are likely to fall below $5,000 per tonne next year as the surplus rises. Projected demand growth of 2.5% this year “is not sufficient to absorb higher domestic refined production,” it said, and added that “while China’s stimulus should help offtake and may support prices temporarily in the second half, the government remains behind the curve.”

As a consequence the broker expects copper to average $4,969 per tonne next year, the lowest level since 2009 and a significant reduction from recent levels around $5,780. Adding insult to injury, Bank of America also slashed its long-term target for the red metal to $6,822 per tonne from $7,300 previously.

A copper-bottomed catastrophe

Clearly this is bad news for specialist copper miners like Antofagasta (LSE: ANTO) and Kaz Minerals (LSE: KAZ), while diversified diggers like BHP Billiton (LSE: BLT) are on course for further pain, too — the London firm sources almost a quarter of total earnings from the copper market.

Still, as Bank of America notes, the industry remains bullish in its determination to keep production rattling higher despite the consequent effect on prices. Chile’s Antofagasta, for example, is on course to bring its Antucoya project online next year, producing some 85,000 extra tonnes of material per annum. The firm is also looking to build a second concentrator at its Centinela asset in order to hike annual production by some 140,000 tonnes.

This trend is being seen across the industry, with miners looking to compensate for lower sales values by swamping the market with larger and larger volumes. On top of this, operators with low cash costs like BHP Billiton are also ramping up output to put their competitors out of business.

But such strategies are likely to crush the industry’s long-term earnings performance, in my opinion, overshadowing the effect of widescale cost-cutting, capex scalebacks and asset divestments. And with weak data from China exacerbating fears of an economic ‘hard landing’ in the country, and political brinkmanship in the eurozone threatening another global financial catastrophe, I believe copper’s poorly price outlook could get much, much worse.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.