Grupo Mexico Benefits From Rising Copper Prices

Grupo México reported profits totaling MX$49.2 million (US$2.45 million) due to the increase in copper prices, which were triggered by China's economic indicators. In addition, the company´s target price per share for the end of 2021 was lowered.

In 2021, Grupo México shares have risen 12.71 percent. On Thursday, Grupo México’s shares had a cost of MX$94.81 (US$4.72), which represents a gain of 7.14 percent compared to the MX$88.49 (US$4.41) on Wednesday. The increase in profits is due to copper prices that rose after the publication of China´s indicators.

China's economy grew less than expected during 2Q21 due to higher raw material costs and new COVID-19 outbreaks. The country's GDP grew 7.9 percent in 2Q21, when a growth of 8.1 percent was expected. However, the indicators were still able to provide relief to investors worried about a slowdown, after the central bank announced a more flexible policy. "With this, the expectation that monetary and fiscal stimuli will increase for this economy increases," said analysts from Banco Base.

Grupo México ranks fifth among the world's largest copper producers with a production of 1.26 million tons per year. In addition, it has had the second-best performance so far in 2021 within the sector on the Mexican Stock Exchange. As a result, the company is expected to continue to benefit from the Chinese market and its prospects, said Humberto Calzada, Chief Economist at Rankia Latin America.

Leonardo Contreras, Head of Grupo México's mining division, reported that the company expects copper demand to grow between 3.5 and 5.5 percent in 2021. Nevertheless, a drop in copper volumes of 1.6 percent per year is expected, said Marissa Garza Ostos and José Itzamna Espitia Hernández, analysts at Banorte. Despite the expected drop, Grupo México will continue to benefit from the positive environment of the copper market, said Garza and Espitia.

Investment bank Morgan Stanley lowered the target price for Grupo México’s shares from MX$100 (US$4.98) to MX$98(US$4.88) by the end of 2021. The target price changed based on commodity prices, increases in the price of copper and the impact of the exchange rate.

Last month, interest rate projections from the US Federal Reserve pushed gold prices down, causing the prices of other precious metals to drop as well. For instance, Grupo México's shares fell 1.92 percent to MX$86.64 (US$4.20). Furthermore, after the announcement of the victory of Pedro Castillo in Peru’s elections, its value went from MX$776.086 billion (US$38.86 billion) to MX$726.729 billion (US$36.36 billion), a total loss of MX$49.356 billion (US$2.47 billion) in market value. Meanwhile, its BMV shares went from MX$99.69 (US$4.99) to MX$92.17 (US$4.62), reported MBN.