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Could OPEC’s Meeting Negatively Impact Freeport-McMoRan?

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OPEC’s meeting

It could be a familiar sign for Freeport-McMoRan (FCX) investors when OPEC (Organization of the Petroleum Exporting Countries) meets on December 4. Last year, at its annual meeting, OPEC decided to maintain its daily crude output. The decision had a negative impact on all of the commodities (DBC). Among the copper producers, Freeport-McMoRan’s stock fell 8.5% after OPEC’s meeting. Teck Resources (TCK) wasn’t far behind. It lost 7.7% of its market capitalization. However, Southern Copper (SCCO) only lost about 3.5% after OPEC’s meeting.

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Volatility

There are two broad reasons why Freeport-McMoRan and Teck Resources fell sharply after OPEC’s meeting last year. First, both of these companies have higher financial leverage. This makes them more volatile. The second reason why Freeport-McMoRan and Teck Resources fell more than Southern Copper can be found in their energy exposure. While Southern Copper is a pure-play copper producer, Freeport-McMoRan and Teck Resources have substantial energy exposure. Turquoise Hill Resources (TRQ) is another pure-play copper producer.

Energy exposure

Teck Resources is the world’s second-largest exporter of steelmaking coal. It’s also North America’s largest producer. It has the annual capacity to produce 28 million tonnes. Freeport-McMoRan diversified into energy exploration a couple of years ago. Crude oil prices fell for more than a year, as you can see in the above graph. If crude oil prices fall again after OPEC’s meeting, it could have a negative impact on Freeport-McMoRan. While Freeport-McMoRan is looking at “strategic alternatives” for its energy business, it’s still exposed to the movement in energy prices.

Meanwhile, can OPEC’s meeting have an impact on copper prices? We’ll explore this in the next part of the series.

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