China's move to end the yuan's peg against the dollar will provide the extra momentum to sustain the global economic recovery, lifting the demand outlook for copper.
While all copper producers are set to gain from this reform process,
, with higher betas, are anticipated to outperform
Freeport-McMoRan Copper & Gold
in the short-run.
A stronger yuan is likely to spur commodities' demand, as Chinese consumers exercise their increasing purchasing power. Copper imports are set to boost in the short-run, which is a bullish sign for copper China's copper exports and a bearish sign for domestic producers.
In the short-run, speculative buying will support higher copper prices on the London Metal Exchange (LME); however, real demand will determine long-term price increases.
Copper for spot delivery on the LME plunged more than 20% to reach $6,037 per ton on June 07, since the peak levels it reached in April. Over the past two months, Freeport, Southern Copper, and Teck Resources have been under pressure of demand uncertainty in China and Europe.
The current yuan reform will likely set the rally for all copper producers. In the short-run, Teck Resources and Southern Copper may rebound sharply in comparison to Freeport because of their higher equity betas. Teck Resources and Southern Copper have equity betas of 2.17 and 1.61, respectively, in comparison to Freeport's 1.44.
China is the major destination for Teck Resources and the company will benefit from the rebound in Chinese demand. The stock opened above $36, the resistance level above the 200-day moving average. In addition to copper, the company is set to benefit from lower operation costs of $55 per ton for coal, to be reflected in its second quarter results.
Southern Copper will benefit from the bullish scenario for copper prices since a 1% increase in copper prices is estimated to raise the company's equity value by a 1.3%.
Teck Resources has eight buy, two hold, and no sell ratings, while Southern Copper has five buy, four hold, and no sell ratings, according to
Analyst ratings guide.
Freeport will likely offer higher benefits to investors in the longer-term with its more diversified end markets. Currently, the stock is trading at an attractive PE multiple of 8.2, in comparison to the Teck's 9.6, and Southern Copper's 14.6.
Freeport has eleven buy, five hold, and one sell ratings, according to
Analyst ratings guide.