UBS Equities-Global Materials _COPPER How Are Global Investors Positione...pdf

ab30May2024GlobalResearchandEvidenceLabGlobalMaterialsCOPPER:HowAreGlobalInvestorsPositioned?Freeport,Glencore,Zijincrowdedlong–Antofagasta,SouthernCopper,CapstonecrowdedshortsFlows.GlobalinvestorsincreasednetpositionsinGlencore,Sumitomo&FirstQuantumthispastmonth,whiletheyreducednetpositionsinLundin,TeckResources&SouthernCopper(Figure1).Crowding.ThemostcrowdedcopperlongsareFreeport,Glencore&ZijinwhilethemostcrowdedshortsareAntofagasta,SouthernCopper&Capstone(Figure2),accordingtoUBSCrowdingFactordataUBSCrowdingFactorUBSCrowdingFactordata.Positioning.Basedonactiveownershipdata,weobserveglobalinvestorsmostlyhavelargeroverweightpositionsincopperequities(excludingZijin&Sumitomo)vs1)theglobalmaterialssector(Figure3);and2)thebroaderequityindexcomparedtoyearend2023(Figure4).ChinesecopperpositioningnetshortnowChinaaccountsforalmost50%ofglobalcopperconsumption,whereweobservethatfuturesinvestors(incl.manufacturers,traders,producers,speculators)arenetshortpositionednow(Figures6).WhatistheCoppersectoroutlook?Thephysicalrealityofthecoppermarketcontinuestoreflectafaster-than-expectederosionofbasecoppersupplywhichhastemperedtheimpactofnewsupplygrowthenteringthemarket.Demandsideconditionsremaingenerallyweakbutwedoseeaninflectionpointin2025andhistoryshowsthatdemandupcyclesdrivepositivepricetrendsasevidentbycoppercorrelationtoglobalPMIs.Also,copperisforwardlookingandwewouldexpectbullishpricemomentumtoshiftbeforeamoreestablisheddeficitormacrotrendisestablishedandthuswebelieveit’sbettertobeearlythanlategivenmacrosentimentremainsweak.UBSrecentlyupgradeditsmedium-termcopperpriceandnowforecasts$4.50/lbin2025and$4.70/lbin2026.EquitypreferencesWehaveBuyratingsonAntofagasta,Glencore,Lundin&Zijin;NeutralratingsonFirstQuantum,Freeport,KGHM,JiangxiCopper&TeckResources;SellratingonSumitomo;CapstoneandSouthernCopperarenotcovered.ThisreporthasbeenpreparedbyUBSSecuritiesLLC.ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURES,includinginformationontheQuantitativeResearchReviewpublishedbyUBS,beginonpage8.UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.EquitiesAmericasBasicMaterialsCurtWoodworthAnalystcurt.woodworth@ubs.com+1-646-2633724AlexStansbury,CFAAssociateAnalystalex.stansbury@ubs.com+1-212-8820097ShawnCaiAnalystshawn.cai@ubs.com+1-212-7134883VeronicaSegallAnalystveronica.segall@ubs.com+1-212-7132553GlobalMaterials30May2024ab2Figure1:CopperCrowdingScore1mochange-20.0-15.0-10.0-5.00.05.010.015.020.0FreeportGlencoreZijinFirstQuantumTeckResourcesJiangxiCopperSumitomoKGHMLundinCapstoneSouthernCopperAntofagastaCopperCrowdingScoreCurrent05/24/24CrowdedLongCrowdedShortCrowdedLongCrowdedShortCrowdedLongCrowdedShortCrowdedLongCrowdedShortSource:UBSQuantitativeResearchFigure2:CopperCrowdingScore-20.0-15.0-10.0-5.00.05.010.015.020.0FreeportGlencoreZijinFirstQuantumTeckResourcesJiangxi