Freeport-McMoRan (FCX), the leading US-based copper miner, has closed in the green for two days. The stock saw a selling spree in May and lost 21% of its market capitalization. Freeport-McMoRan is flat for 2019 based on the closing prices on June 4.
The sharp fall in Freeport-McMoRan’s stock price isn’t hard to explain. The company gets most of its revenues from copper. Copper prices have fallen in 2019 amid the escalating US-China trade war. Currently, copper prices on the London Metals Exchange are below the psychologically crucial $6,000 per metric ton level. Incidentally, copper fell below $6,000 per metric ton last year amid the trade war scare.
Freeport-McMoRan after the sell-off
Is Freeport-McMoRan attractive after the sell-off? Looking at the short-term perspective, it’s tough to predict copper prices. A single tweet from President Trump could get markets and commodities moving in either direction. However, from a medium to long-term perspective, we need to consider copper market dynamics as well as Freeport-McMoRan’s fundamentals and valuation.
Copper demand should continue to grow at a low-single-digit pace. The estimate is based on the assumption that we don’t see a serious slowdown in the Chinese economy amid the trade war. China has several fiscal and monetary policy tools to address the slowdown. China has been through this “hard landing” phase a few times in the last five years.
Copper is among the commodities where the supply might not keep pace with even modest demand growth. Copper doesn’t face the tsunami of Chinese exports like steel and aluminum. In contrast, China is the biggest copper importer. China sees copper as a strategic metal. Copper’s fundamentals look decent in an otherwise somber metal market.