Higher Commodity Prices Push Freeport-McMoRan to 4-Month High

Previously, we discussed some of the company-specific factors that have pushed Freeport-McMoRan (FCX) to higher price levels. Along with these factors, there have been several positive macro developments that have aided the rally in all metal shares including Glencore (GLNCY), Teck Resources (TCK), and BHP Billiton (BHP). The general risk-off sentiment that was prevailing at the beginning of the year has now faded away, which has led to a sharp rebound in commodity (USCI) prices as we’ll explore in this part of the series.

Copper prices are trading in the vicinity of $5,000 per metric ton. Copper prices have recovered sharply from their January lows. This supported copper miners including Freeport. The uptrend was not limited to copper alone. Energy and gold, which are two of the other major commodities that Freeport produces, have also risen sharply this year. The graph above shows Freeport’s earnings sensitivity to different commodities.

Higher commodity prices would support Freeport’s earnings in 1Q16. Moreover, higher commodity prices and improving sentiments will help Freeport in fetching a higher price for its assets. Freeport has already won round one in its fight for survival in the Morenci stake sale. According to analysts, Freeport has managed to get a good deal in the Morenci stake sale. However, that is also due to the scarcity of quality copper assets and copper’s better long-term outlook. You can read more about copper’s long-term outlook in our series, Steel, Copper, or Aluminum: What’s Best for Your Portfolio?

Another factor supporting commodity prices has been the series of stimuli from China to Europe. But have fundamentals improved in sync with Freeport’s price action? Let’s begin by looking at China’s copper demand indicators.