Copper stocks have been under pressure in recent months, with prices falling 16% since their record high in May.

Despite this correction, analysts at RBC Capital Markets believe that copper prices could find a bottom near current levels at around $4.00 per pound.

Analysts point out that while global economic concerns, particularly in China, have weighed on prices, supply constraints remain. An improvement in demand, particularly from China, could potentially push prices up again.

RBC notes that there were mixed signals in the copper market.

Positive indicators include the increase in the Chinese import premium to 60 US dollars per tonne from minus 14 US dollars in mid-June and a 15 percent decline in copper stocks in Shanghai over the past month.

On the other hand, inventories on the London Metal Exchange (LME) rose by 40% over the same period, reflecting ongoing economic uncertainty.

“A broader global slowdown remains a downside risk, which historically would suggest copper prices fall to marginal cost ($2.75-3.00/lb). However, if a softer landing does indeed occur and rate cuts provide support, we could be heading toward a bottom around $4.00/lb,” analysts said.

For copper stocks, the outlook remains cautiously optimistic. Year-to-date, copper stocks have outperformed the metal itself, with shares up 22% while copper has gained just 5%. Despite recent setbacks in operating performance, shares are trading at “reasonable” valuations.

RBC analysts point out that the second half of 2024 is likely to be crucial for copper producers, as many companies will need stronger operating performance to meet annual forecasts.

According to the latest industry update, about 45% of the annual production target has been achieved so far and a significant increase is expected in the coming months. However, costs are about 4% above the midpoint of the forecast.

“Second quarter results were boosted by higher metal prices, with copper up 15% and gold up 13% from the first quarter, offsetting weaker operations and leading to approximately 67% of covered copper producers beating EBITDA estimates,” the analysts stressed.

Several copper producers faced challenges during the quarter but remain optimistic about better performance in the second half of 2024.

Producers such as Capstone, Teck (TECK), Ivanhoe, Hudbay (HBM) and Lundin are focused on accelerating key projects and improving operations, according to RBC.

Costs remained generally under control during the first half of the year and further improvements are expected at Teck due to higher QB2 volumes and at Capstone due to the successful ramp-up of the Mantoverde development project.

According to RBC, Freeport (FCX) and First Quantum are also well positioned to meet their full-year guidance, provided operations remain stable in the coming months.