Barlow’s Research Roundup: Obscure chemical shortage threatens global copper supply

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Copper

RBC Capital Markets analyst Sam Crittenden highlighted an ongoing shortage of the sulphuric acid necessary for copper production and how it benefits one domestic stock,

“Copper equities came under pressure this past week, declining 5.5 per cent despite a flat underlying commodity price, with sentiment dragged lower by a pullback in gold (down 2.5 per cent), a firming US dollar (up 0.4 per cent), and a sharp oil rally (up 12.6 per cent) as markets digest the spillover effects of the war in Iran. Among these spillovers, sulphuric acid availability remains in focus: beginning in May 2026, China will halt acid exports to prioritize domestic fertilizer and battery production, with prices reaching $1,000/tonne and threatening leaching operations representing 20 per cent of global copper output while DRC operations rely primarily on Middle Eastern acid. Nickel prices have jumped to a 2-year-high on growing concerns of shortages impacting Indonesian supply. Ivanhoe Mines stands out as a clear beneficiary, with the newly commissioned Kamoa-Kakula smelter producing 1,200tpd of acid that could generate over $400-million in annual byproduct revenues at spot prices. Capstone and Lundin face potential cost headwinds from their Chilean leaching operations, although local supply chains and term contracts could provide insulation in the near term. Meanwhile, physical copper demand in China remains strong with robust SHFE premiums, a large 16-per-cent drop in inventories last week, and spot treatment charges hitting an all-time low of $85/tonne”

The sulphuric acid situation is a good reminder of how intertwined the global economy has become and how one country limiting exports of a somewhat obscure chemical agent can threaten global copper mining.

Defence

Defence stocks, which looked like a bulletproof trade a few weeks ago, are struggling according to BofA Securities analyst Ronald Epstein,

“Last week, many of the defense stocks we cover underperformed the market. Further, it was not just a US phenomenon. While the S&P500 was up about 80 bps, General Dynamics was down 5.7 per cent, L3Harris down 8.9 per cent, BAE down 9.8 per cent, Rheinmetall down 10.7 per cent, RTX down 11 per cent, Thales down 11.6 per cent, Lockheed Martin down 11.7 per cent and Northrop Grumman down 12.5 per cent … Of the companies that reported, their earnings were generally disappointing, particularly with NOC and LMT. The reported numbers were generally ok, but there were company specific execution issues, concerns about margins, cash flow and a perceived lack of short-term positive catalysts. Further, from a stock perspective, the near catalyst set ahead is largely seen as negative. The possibility of peace in Iran (or status quo holding) and Ukraine are good for humanity, but not great for defense. We do see this view largely ignoring the multiple years of demand which would be required to just replenish stockpiles. We note LMT’s backlog grew 8 per cent year-over-year to $186-billion, and RTX’s was up 21 per cent year-over-year to $74-billion, and neither includes the seven year framework agreements”

Earnings

Morgan Stanley Wealth Management chief investment officer Lisa Shalett is concerned about optimistic profit forecasts,

“We continue to believe that 2026 earnings, exhibiting 12 per cent–13 per cent growth, will drive a fourth year of S&P 500 gains, we remain cautious about ebullient 17 per cent–20 per cent profit-gain forecasts. Markets can “look through” some fundamental factors as transitory but corporate earnings cannot. Investors relying on positive revision trends thus might take care, given decoupling from key indicators like GDP growth. Revisions, often based on unsustainable semiconductor and energy pricing, are also very concentrated. Finally, while analyst revisions can be important, their predictive power for market returns is only middling. It’s time to closely examine what companies are doing and delivering, not what they’re promising. Consider focusing on active equity strategies to balance passive index exposure. Happily for active managers, some stocks are ‘on sale’ in tech, software, health care, consumer sectors and financials … we worry that the headlines may mask what is really going on and that consensus earnings revisions may not be a fully reliable indicator this year. Consider first the extent to which revisions have further decoupled from ISM manufacturing activity. While activity has perked up after a tough three years, the spread between the six-month change in forward earnings revisions and manufacturing activity is its widest in more than 35 years of data”.

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