Freeport-McMoRan (NYSE: FCX), one of the largest producers of copper, has seen its stock underperform a bit over the last month, falling by 7% compared to the S&P 500 which was up 1%. While the big reopening of the Chinese economy following the easing of Covid-19 restrictions late last year is seen as a big tailwind for the copper market, copper prices have cooled a bit recently. For instance, while copper prices rose from about $3.60 per pound in early December 2022, to about $4.20 in late January, they have declined to about $4 per pound currently. The recent worries in the banking sector, the strong U.S. dollar, and incremental interest rate hikes have also impacted prices for the commodity. Manufacturing activity in the U.S. has also been sluggish, with the purchasing managers index for March falling to a three-year low.
Now, despite the trends, there are a couple of positive factors that could drive Freeport’s stock as well. Despite some concerns about demand, the supply situation in the copper market remains somewhat tight, considering the headwinds caused by the war in Ukraine and disruptions in production from South America. The long-term demand outlook is also favorable, given the adoption of renewable energy and electric vehicles, which both are very copper intensive. For perspective, EVs use over 2x the copper used by traditional internal combustion engine vehicles. Renewable generation such as solar and wind requires over 5x more copper for each installed MW compared to traditional nuclear and fossil fuel-based power generation. Separately, crude oil prices have cooled off a bit in recent weeks, and this could have a net positive impact on energy and input costs for copper players. We remain neutral on Freeport stock with a $39 price estimate which is roughly in line with the current market price. See our analysis on Freeport-McMoRan Valuation: Is FCX Stock Expensive Or Cheap? for more details on what’s driving our price estimate.
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