JPM-Grupo Mexico Southern Copper Model Update-20251217

We are updating our estimates to incorporate the 3Q25 results, new guidance andupdate the latest macro data and mark-to-market commodity prices. Ourcommodities team, led by Gregory Shearer, flagged that copper remains theirmost-conviction view, as acute supply disruptions and dislocated globalinventories set the stage for prices to break above $12,000/mt in 1H26. The teamnow expects an average of $12,075/mt for 2026 (+7% vs. previous estimates) and$11,600/mt for 2027. Last week saw a significant 50 kmt cancelation of LMEinventory, signaling a shift from an early supportive phase to a more bullish andvolatile market environment. While supply disruptions have contributed to therally, the core of the bullish outlook is rooted in sharply reduced global inventoriesand strong U.S. demand for refined copper. This demand should force other regionsto compete, driving premiums higher, especially in Asia. As a result, consumersoutside the U.S. are increasingly turning to the spot market, making LMEinventory more attractive. Leading to further inventory cancelations inanticipation of rising spot demand. With LME copper stocks now below 100 kmt,the market is entering a regime where backwardation and prices could rise sharply.Although Chinese demand remains cautious and opportunistic exports maypersist, China is unlikely to offset the tightening market. The ongoing threat of U.S.tariffs on refined copper could ultimately drive a scenario where ex-U.S. markettightness drains LME stocks, intensifying backwardation and pushing LME priceshigher to close the COMEX arbitrage. Overall, we continue to prefer GrupoMexico vs. Southern Copper. We see Grupo Mexico trading at 6.3x EV/EBITDAwith a PT of Ps178.0/sh and Southern Copper at 13.4x EV/EBITDA with a PT of$119.5/sh.