BHP has made a surprise bid for venerable South African diversified miner Anglo American. While Anglo quickly rejected the $37 billion bid as materially undervaluing the company (that’s what they would say, isn’t it?), the story will not go away anytime soon, and the market is taking it seriously. Chances are that BHP will have to sweeten the bid if it wants to succeed.
Anglo American is vulnerable to being taken over because its stock has lagged behind those of rivals in recent years due to weakness in the price of platinum group metals and diamonds, and its exposure to South Africa, where there has been labour strife, power shortages, and political uncertainties. The company is digestible because it’s valued at $37 billion against $150 billion for BHP. BHP is particularly attracted to Anglo because it has large stakes in three high-quality South American copper mines and is a major copper producer. A combination of Anglo and BHP would create the world’s largest producer of the metal. Copper is hot due to its use in electric cars and green energy, with the price soaring in recent weeks – it’s up around 13% from the beginning of the year.
Copper is benefiting from real supply and demand tailwinds. A long-awaited manufacturing rebound in China and America’s surprising economic strength in the face of higher rates could both push demand higher. Meanwhile, production downgrades by several mining companies and the prolonged closure of one of the world’s largest copper mines in Panama are weighing on supply.
Citibank expects copper demand will exceed supply this year and expects a deficit of one million metric tonnes over the next three years. Morgan Stanley forecasts a 700,000 metric tonne deficit in 2024.
China, which consumes about half the world’s supply, has seen copper demand rise sharply in late 2023 and early 2024: demand has been up an average of 18% year on year over the last 5 months.
Source: Wall Street Journal
A major driver is the green energy transition, which is copper intensive and requires heavy electrical investment. China’s output of electric vehicles was up almost 30% year over year in early 2024, and its installed solar photovoltaic capacity rose nearly 60% in 2023. That is helping offset weak demand from housing: completions in China’s struggling property segment were down 20% year over year in the first two months of 2024.
The outlook for copper looks bright and is no doubt the driving factor behind the bid by BHP for Anglo. But markets are tricky, and markets for metals are notoriously volatile. Watch this space.
Ten Year Copper Chart
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