How important is copper for the future of BHP shares?

BHP Group Ltd (ASX: BHP) shares have been closely linked to the performance of the iron ore price over the last few years. But copper could have a growing influence on the ASX mining share as time goes on.

BHP is already one of the largest copper miners in the world, but it wants to increase its exposure further. Of BHP’s US$27.2 billion revenue in the first-half period, copper was responsible for US$8.66 billion of that revenue.

Anglo-American acquisition attempt

The mining giant recently confirmed it had made a bid for the large UK-listed miner Anglo-American. It offered 0.7097 BHP shares for each Anglo-American share.

There were a few different reasons for that bid.

BHP said it would increase its exposure to future-facing commodities, including copper assets. These assets would add growth and diversification to its existing portfolio.

Other benefits include additional iron ore and metallurgical coal projects, as well as the ability to deliver meaningful synergies.

Some large institutional investors have given their blessing to BHP’s pursuit of Anglo-American and copper plays in general. According to reporting by the Australian Financial Review, HESTA chief executive Debby Blakey said:

Australian mining companies stand to benefit from boosting their exposure to transition minerals.

These commercial opportunities must also have the appropriate scale and efficiencies to meet the expected surge in demand for future-facing commodities.

Critical minerals are key to supporting the energy transition, given the need for a rapid shift to clean energy technology.

On The Bull, Tom Bleakley from BW Equities (who rates BHP shares as a hold) said BHP was the “conservative path for exposure to the copper price”, though he pointed out iron ore was still currently the “dominant driver” of BHP’s revenue and earnings.

Two tailwinds for the copper price

The fund manager, L1 Capital, thinks both supply and demand could help copper’s medium-term fundamentals.

L1 said there was robust demand growth due to “electrification tailwinds, incremental data centre and AI-related demand, as well as the potential for improving global manufacturing activity on easy monetary policy.”

There is also “constrained supply resulting from the insufficient number of new major mines planned over the next decade and the significant decline of the existing production base.”

L1 expects copper market deficits to “continue to widen over time, with copper prices moving closer to scarcity pricing over the next few years”. The fund manager suggests physical deficits are “virtually unavoidable”.

BHP share price snapshot

Since the start of 2024, the BHP share price has dropped by 15%, as we can see in the chart above.

The post How important is copper for the future of BHP shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.