After its split, Alcoa (AA) is now a pure-play commodity producer, having integrated aluminum operations. On the other hand, Freeport-McMoRan (FCX) is now mainly a copper producer since the company has exited most of its energy assets. Alcoa has risen 18.5% year-to-date (or YTD) based on May 26 closing prices while Freeport has lost 11.5% over this period. Freeport’s relative underperformance is mainly due to two key reasons.
Firstly, aluminum prices are up 15.3% so far in 2017 while copper has gained only 3.4% over this period. Notably, copper was among the biggest gainers after Trump was elected as the US President (DIA)(DJIA-INDEX). Copper continued its good run in January and February also as supply-side issues boosted prices.
Now, we’ve seen unwinding of some of the factors that drove copper prices. Most of the supply-side issues, with the notable exception of Freeport’s Grasberg mine, have been resolved—at least for now. We’ve also seen a reversal in the Trump trade, which is visible in copper prices.
While metal prices have helped Alcoa outperform Freeport, some of the company-specific factors have also driven Freeport’s underperformance. Freeport was barred from exporting copper concentrates from its Grasberg mine for more than three months this year. Now, when the company has received a short-term export permit, it’s facing a labor issue at Grasberg. Concerns over the Grasberg mine have impacted Freeport’s price action this year and the stock has underperformed other copper miners, including Southern Copper (SCCO) and Glencore (GLNCY).
In the next part of this series, we’ll see how analysts are rating the leading copper producers.