Broker snap: Higher copper prices don't mean higher earnings, says Jefferies

16th Mar 2012 11:27

Following Jefferies' first annual copper summit yesterday, the US investment bank said that the key takeaway is that global copper supply growth is likely to fall short of expectations and lead to higher-than-expected prices.Jefferies said that supply constraints are not easing due to declining grades, shortages of key input geopolitical risk factors, increasingly difficult ore bodies and geology, and capital cost inflation - "we rarely recall a time where supply for this important metal has been so challenged," analysts said.The broker said that most of the presentations at the summit focused mainly on supply issues and not on demand for copper. "While demand risk is clearly elevated in light of macroeconomic risks in general, our analysis indicates that the current demand environment may be better than the market believes."While supply issues are expected to lead to higher copper prices, Jefferies does not expect this to result in higher earnings for the UK-listed copper miners in its coverage. "Unit cost inflation pressures and the risk that production volumes fall short of our forecasts could lead to a period of higher prices but not necessarily higher earnings. Furthermore, it is likely in this case that the copper price will outperform share prices of UK-listed copper miners.Among the stocks (and subsequent ratings) mentioned in the report this morning were: Antofagasta (hold); First Quantum (buy); Glencore (buy); Kazakhyms (buy); and Xstrata (buy).BC