As discussed in the previous part of the series, Freeport-McMoRan’s (FCX) price movements have been helped by a rebound in copper and energy prices. The announcement of the stake sale in the Morenci mine also built positive momentum around the stock. Freeport-McMoRan (FCX) has been defying all laws of gravity over the last few trading sessions. Even the analyst downgrades and the credit rating cut failed to deter Freeport bulls. So, what should investors do now after Freeport’s big move up? Let’s see.
China is still weak
Besides all the equity market rally, the fact remains that the Chinese economy has still not shown any signs of bottoming out. China’s January trade data is a testimony to the slowing Chinese and global economic activity. Furthermore, copper markets are showing no signs of moving to a deficit in 2016 as is visible in copper producers’ 2016 production plans. Most copper producers including Rio Tinto (RIO) and Southern Copper (SCCO) expect to produce more copper in 2016 as compared to the last year. However, Glencore’s (GLNCY) copper production is expected to fall this year as can be seen in the graph above. You can read more about different copper producers’ 2016 guidance in Copper Producers’ 2016 Plans: A Ray of Hope or a Cloud of Doom.
Energy prices have gotten a boost from the much-awaited Russia-OPEC deal. Now, markets are expecting Iran will also agree to some sort of an arrangement with OPEC. However, these sides have diametrically opposite political positions in the ongoing conflict in the Middle East. It would not be surprising if the hype around the deal dies down soon.
Though Freeport has started its asset sales program with a bang, there’s still a long way to go. Furthermore, whether Freeport can use Morenci as a benchmark for future asset sales remains to be seen. Some buyers like Rio Tinto (RIO) don’t see much value in the assets that are currently on the block. However, Chinese companies could see value in buying copper assets, as the country lacks in quality copper assets.
The upward momentum in Freeport could keep bears at bay for some time. However, if global growth concerns take over, we could again see bears back in full throttle. You can keep track of all important events and indicators concerning mining investors by visiting Market Realist’s copper page.
Investors who want diversified exposure to the materials sector can also consider the iShares US Basic Materials ETF (IYM). Almost 14% of IYM’s holdings are invested in metals and mining companies. Together, Freeport and Newmont Mining (NEM) form 4.5% of IYM’s portfolio.