Investing in ASX copper shares

Copper is among the world's most highly consumed industrial metals, and experts predict demand will double over the coming decade. Copper is a critical component of solar and wind energy systems, crucial to the global renewable energy transition. 

What are ASX copper stocks?

ASX copper stocks provide investors with exposure to the copper industry. They include companies already producing copper, such as mining giants Rio Tinto Limited (ASX: RIO) and BHP Group Limited (ASX: BHP), as well as junior miners with copper projects in the development phase, like Havilah Resources Ltd (ASX: HAV).

'Pure play' copper companies focus exclusively on copper production. As their fortunes rest almost entirely on the value of the red metal, their share prices will be sensitive to movements in the market price of copper. They include miners like Hot Chili Ltd (ASX: HCH), a micro-cap company developing several copper mining assets in Chile. 

Other mining companies, like BHP and Rio Tinto, operate a diversified portfolio of mining projects and produce many different metals and minerals besides copper. They are less dependent on the price of copper to turn a profit, so their share prices may move due to a range of factors, such as the prices of the other commodities they produce.

Pure play companies offer investors more direct exposure to copper but can also be more volatile because they rely so heavily on the copper price.

Why invest in ASX copper shares?

Copper has many applications across multiple industries, making it one of the most in-demand industrial metals globally. We use copper in electrical wiring and many common electronic appliances, as well as in car radiators and heating systems. It is alloyed with tin to form bronze and with zinc to form brass.

Demand for copper is expected to increase as countries transition to more renewable forms of energy. Because copper conducts electricity so well, it is a crucial component in solar and wind energy systems and even electric vehicles.

In May 2024, the copper price surged to fresh highs of more than $11,000 a ton due to widening supply-demand deficits. This led to predictions of "demand rationing" by broker Goldman Sachs, given few new mines are opening. 

Since then, the copper price has fallen around 18% due to softer-than-expected demand from China and downside risks to China's forward economic outlook. Goldman Sachs, which had predicted the copper price would reach $15,000 a ton in 2025, recently slashed its price forecast to an average of $10,000 a ton in 2025. Nonetheless, the bank maintains that the market is heading for a steep supply deficit in the longer term. 

How have copper shares fared recently, and what's ahead?

Copper companies such as Sandfire Resources Ltd (ASX: SFR), which saw share prices climb in the first half of 2024, have seen gains moderate in recent months amid high inflation and global recession fears. High interest rates and persistent inflation have dampened the economic outlook, which is reflected in the share prices of many copper companies.  

Although long-term trends for copper remain positive, heightened economic uncertainty puts pressure on the commodity's price. Because it is used in so many industries, copper is often seen as a bellwether for the health of the wider economy. Rising interest rates curb business activity and slow economic growth, which causes short-term demand for copper to wobble.

However, the long-term potential for the red metal is difficult to ignore, with analysts predicting copper shares could continue to benefit from some healthy tailwinds. 

Recent developments in the Australian copper industry

In an article about the Australian copper industry, we would be remiss if we didn't mention the takeover of OZ Minerals Limited by mining giant BHP in 2023. Until it was acquired, OZ Minerals was the largest pure-play copper miner on the ASX, with BHP paying $9.6 billion in the takeover deal.

The deal means that BHP now owns the OZ Minerals portfolio of copper assets. These include operational and in-development copper mines across Australia and Brazil and several exploration projects underway in Australia, Peru, and Sweden.

The deal created a bit of a shakeup of the copper sector, which means there are now few options left for investors seeking exposure to pure-play copper miners on the ASX. Microcap Hot Chili is just about the only pure-play miner left, and, given its size, it is only a highly speculative investment at present.

Top copper shares on the ASX

Ranked by market capitalisation from high to low.

BHP

It's impossible to exclude BHP from any list of major mining stocks. It is, after all, the largest mining company in the world – and with a market cap of close to $200 billion, it is also one of the largest companies currently trading on the ASX.

BHP operates the largest copper mine in the world, Escondida, in northern Chile. Construction on the mine was completed in 1990. It is a joint venture between BHP, Rio Tinto, and the Japanese company JECO Corporation. BHP also operates copper-producing mines in Australia, the United States, Peru, and Chile.

As we just mentioned, it has also added considerable copper mining assets of OZ Minerals to its portfolio.

BHP is also a diversified mining company operating many large mining projects worldwide. This makes it an excellent investment for investors seeking some copper exposure but who would also like exposure to other commodities, like iron ore.

Sandfire Resources

Sandfire is a junior mining company with ambitions to become a significant global copper producer. In FY24, Sandfire delivered a 47% increase in Group Copper Equivalent (CuEq) production from continuing operations and established a platform to grow production by a further 13% in FY25. 

Sandfire owns the MATSA mining operation in southwestern Spain, for which it paid US$1.865 billion in 2022. The project produces copper, zinc, and lead from a network of three existing mines, and further exploration is possible nearby.

In addition to its Spanish operations, Sandfire owns the DeGrussa copper-gold mine in Western Australia and is developing the Motheo copper operations in Botswana. The Motheo mines were officially opened in August 2023, and Sandfire is seeking to leverage this position by focusing on exploration opportunities in the region.

Aeris Resources

With a market cap of around $150 million, Aeris Resources is by far the smallest copper company on this list, which also means it is the riskiest. Aeris is a mid-tier base and precious metals producer with interests in copper, gold, silver, and zinc.

Its flagship copper project is the Tritton Copper Mine in central NSW. It is a long-life mining asset, with production first commencing at the site in 2005. Significant new copper ore deposits have been found in the area since, further extending the mine's life. 

Aeris also operates a gold mine in central Queensland, a zinc, copper, and silver mine in Western Australia, a copper mine in Queensland, and a copper and zinc project in Victoria. It has predicted that its CuEq will be 40 – 48kt in FY25. 

Pros of investing in copper shares

Ongoing demand: Copper is one of the most highly consumed metals out there, with a wide range of everyday uses, so investors can be reasonably confident that demand will remain high over the long term.

Clean energy tailwinds: Copper is also a crucial component in most infrastructure required to transition to renewable energy. This could see demand for the red metal quickly outstrip supply, pushing up the market price for copper.

Cons of investing in copper shares 

Price volatility: The drawback to investing in copper is that its value tends to correlate with changes in the broader economy. Demand will often decrease during a downturn or recession. When interest rates and borrowing costs increase, businesses tend to cut back on new projects. This means the construction and manufacturing industries may slow down, impacting the copper price. This may compound short-term losses on other shares in your portfolio, meaning that copper shares may not provide good diversification benefits in a bear market.

Environmental and regulatory risks: Copper mining operations are subject to strict environmental regulations, which can lead to increased costs and operational challenges. Public and governmental pressure on environmental sustainability can lead to additional compliance costs, delays, or even project shutdowns.

Are ASX copper shares right for you?

As discussed, there are some compelling reasons to invest in copper. It is a highly consumed industrial metal with various applications and will be crucial to the global push towards renewables. It is forecast that long-term demand for copper may outstrip supply, which could see the value of the red metal rise over the longer term.

However, there are also risks to investing in copper. Short-term price declines on copper shares may add to your portfolio's losses during a recession when demand for copper is likely to be lower.

You should weigh these risks and rewards before deciding whether to invest in copper shares. Before making any investment, it is always important to consider whether it fits your personal risk tolerance and investing goals.

• With additional reporting by Motley Fool contributor Kate O'Brien