Alcoa’s Outperforming Freeport-McMoRan This Year
Alcoa (AA) and Freeport-McMoRan (FCX) are large US-based metal producers. While Freeport is the world’s largest publicly traded copper miner (GLNCY) (SCCO), Alcoa ranks among the top five aluminum producers globally (CENX). In 2017, Alcoa has outperformed Freeport by a wide margin. While Alcoa is trading with YTD (year-to-date) gains of 61.6%, Freeport has only risen 6.6% in 2017 based on the closing prices on September 22.
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Freeport’s underperformance could be due to some company-specific factors. The company was involved in tough negotiations with Indonesia’s government for its long-term mining rights in the country. Although Freeport announced a framework with Indonesia that would provide long-term visibility to its Indonesia operations, it had to agree to dilute the majority stake in Indonesia.
Copper has underperformed aluminum this year. Although copper got near $7,000 per metric ton, it has pared some of its 2017 gains. Copper is trading below $6,500 per metric ton. Based on the closing prices on September 22, copper has risen 17.2% on the London Metals Exchange. Aluminum is trading with YTD gains of 27.5%.
We should remember that aluminum and copper rose due to similar factors—better-than-expected demand and less-than-expected supply. So, why has copper come under pressure this month? To answer this question, we need to understand some fundamental differences between copper and aluminum. In the next part, we’ll see why aluminum’s fundamentals are different from copper.