Geopolitical Protectionism And Material Substitution Will Crush Copper Demand

Key Takeaways

• Growing material substitution and technological trends threaten core copper demand, putting long-term sales growth and profitability for Aurubis at risk.
  
• Heightened input costs, regulatory pressures, and increased competition are likely to erode margins and destabilize future earnings.
  
• Strategic growth in multi-metal recycling, strong copper demand, diversified revenue streams, and disciplined cost management position Aurubis for resilient margins, earnings growth, and sustained shareholder returns.

Catalysts

Processes metal concentrates and recycling materials in Germany.

• Accelerating adoption of material substitution in key industries such as automotive and electronics, with increased use of aluminum and advanced polymers in place of copper, threatens to structurally reduce primary copper demand, severely limiting Aurubis' long-term sales growth potential and pressuring future revenues.
  
• Ongoing advances in miniaturization and digital manufacturing have the potential to decrease copper intensity in end markets, particularly in electronics and digital infrastructure, which would undermine the core volume growth drivers for Aurubis and negatively impact both gross profit and margin expansion over time.
  
• Rising geopolitical protectionism and resource nationalism are expected to heighten trade barriers and restrict access to critical raw materials, increasing Aurubis' input costs and introducing persistent supply chain volatility, with direct adverse effects on net margins and earnings stability.
  
• Aurubis' heavy reliance on European energy sources and ongoing exposure to regulatory volatility, such as unpredictable carbon pricing and the risk of sustained high energy prices, could erode operating margins, exacerbating cost pressures and limiting free cash flow resilience in future years.
  
• Industry-wide declining copper ore grades, combined with growing environmental compliance burdens and rising competition from new secondary recyclers, are set to raise production costs and compress margins, jeopardizing Aurubis' ability to maintain its historical returns on capital employed and leading to structurally lower EBITDA growth.

Aurubis Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Aurubis compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Aurubis's revenue will grow by 3.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 3.4% today to 1.2% in 3 years time.
• The bearish analysts expect earnings to reach €233.5 million (and earnings per share of €5.33) by about August 2028, down from €616.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 6.8x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.42%, as per the Simply Wall St company report.

Aurubis Future Earnings Per Share Growth

Risks

• Aurubis' significant investments in strategic growth projects, particularly the expansion of multi-metal recycling (including the Richmond facility in the U.S.) and process automation, are expected to materially increase EBITDA contributions and free cash flow in the midterm, supporting higher group earnings and a stronger balance sheet.
  
• Structural long-term copper demand is underpinned by accelerating electrification, green energy infrastructure, and ongoing data center and digitalization build-out, ensuring robust sales volumes and pricing power for Aurubis' core copper products, which could drive revenue and margin expansion.
  
• Management confirmed that its multi-metal recycling expansion in the U.S. is well-timed, as new domestic policies favor local processing, scrap availability is increasing, and the company expects the Richmond plant to deliver a €170 million EBITDA contribution in the midterm, which would lift group earnings and shareholder returns.
  
• Aurubis' diversified revenue streams-including rising sulfuric acid sales, stable premium product business, and upside from precious metals-provide resilience against cyclical pressures in treatment and refining charges, strengthening the group's operating margin and earnings stability.
  
• The company's healthy balance sheet, disciplined capital allocation, and ongoing cost-reduction initiatives-including a targeted mid-triple-digit million euro working capital release and G&A cost cuts-support robust net cash flow generation and the sustainability of dividends, making the shares more attractive to long-term investors.

Valuation

• The assumed bearish price target for Aurubis is €60.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Aurubis's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €110.0, and the most bearish reporting a price target of just €60.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €19.8 billion, earnings will come to €233.5 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of €96.35, the bearish analyst price target of €60.0 is 60.6% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.