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Freeport Investors Are Confused: Why Did Copper Rally?

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Freeport investors

As we noted in the previous part, copper prices rallied handsomely after Donald Trump’s win in the presidential election. Copper was having a hard time holding on to the $5,000 per metric ton price level before the elections. It briefly topped $6,000 per metric ton. We should note that Trump’s proposed infrastructure investments could boost US copper demand. Markets seemed to have repriced copper for the expected increase in US copper demand.

Meanwhile, after the spectacular rally in copper prices (DBC), analysts differ on the metal’s outlook.

We should note that copper producers’ earnings including Freeport-McMoRan (FCX), Teck Resources (TCK), and Rio Tinto (RIO) (TRQ) are sensitive to copper prices. Freeport’s fortunes are even more closely tied to copper prices because the company sold most of its energy assets.

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Goldman Sachs is still bearish

Goldman Sachs has been bearish on base metals including copper and aluminum for quite some time. It raised its copper price target. In August, the brokerage warned of a “supply storm” in copper prices. The prices fell to $4,000 per metric ton over 12 months. Now, Goldman Sachs raised its near-term price outlook. It also raised the six-month price forecast from $4,300 to $4,800.

However, Goldman Sachs is still bearish on copper prices. Its price forecasts are much lower compared to copper’s current price levels. Several other leading brokerages also expect copper to pare its post-election gains.

Some analysts are bullish

Meanwhile, some analysts expect copper to sustain the recent gains. According to the Sunday Morning Herald, “Macquarie believes the metal’s prices will remain elevated thanks to an expected increase in Chinese stimulus and US infrastructure spending.”

In the next part, we’ll see what miners including Freeport have to say about copper’s recent spike.

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