For commodity producers like Glencore (GLEN-L) and Anglo American (AAL-L), the macro outlook is equally or possibly more important than the company’s relative position in the industry. Commodity producers’ earnings are sensitive to underlying commodity prices—something they don’t have much control over. In this part, we’ll see what Freeport-McMoRan (FCX) had to say about copper’s outlook during the 4Q17 earnings call.
Commodity prices are impacted by underlying demand-supply dynamics—copper isn’t an exception. Richard Adkerson, Freeport’s CEO, said during the company’s 4Q17 earnings call, “Copper market commentary is as positive right now as we’ve seen. Demand is growing throughout the world.” He also pointed to better-than-expected demand from China and growth in developed economies including Europe and the US.
Adkerson also pointed to the supply-side issues facing the copper industry (RIO). He said, “Analysts and consultants who follow this business are expecting 2018 to be the first year of lower copper production after providing for disruptions than the prior year, first time that’s happened since 2011.”
Looking at major copper miners’ 2018 operating plans, global mined copper production could increase on a yearly basis this year. However, several of the leading mines—including Escondida, the largest copper mine globally, which is operated by BHP Billiton (BHP)—are slated to negotiate labor contracts this year. If last year is any indication, there could be bumpy times for copper supply amid a flurry of labor negotiations.
Meanwhile, Freeport signed a two-year labor contract in Indonesia in December. Next, we’ll see what management had to say about the contract during the 4Q17 earnings call.