Improved Outlook For Copper And Oil Prices Prompts A Revision In Our Price Estimate For Freeport-McMoRan To $15

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Copper prices have rallied sharply over the past few weeks, post the conclusion of the U.S. presidential elections, as illustrated below.

Rebound In Copper Prices

(Source:Copper Spot Prices, LME)

President-elect Trump’s plans for an overhaul of domestic infrastructure, with an emphasis on transportation infrastructure, has changed the outlook for U.S. and global copper demand in the coming years. [1] The President-elect’s plans for $1 trillion worth of infrastructure spending over ten years is expected to boost global demand for copper in the coming years, with expectations of higher demand translating into an improved pricing outlook for the commodity as well. [2] Moreover, firming U.S. GDP growth, as reflected in the Q3 2016 GDP growth figures, is a positive for copper prices as well. [3] Given the changed outlook for copper prices, we have suitably altered our forecasts for Freeport-McMoRan’s realized copper prices. The following graph illustrates our expectations for the same.

Apart from the improved outlook for copper prices, the recent production cut by OPEC has also boosted the near term prospects for oil prices. [4] We have suitably modified our forecast for the same, which is reflected in our estimates for the realized prices for Freeport’s oil and gas division.

Changes to our pricing forecasts for both copper and oil have also translated into higher margin forecasts for both Freeport’s copper mining and oil and gas divisions. These changes to our estimates have resulted into a revision in our price estimate for Freeport-McMoRan to $15.20. Our new price estimate for Freeport reflects the improved business environment for the company.

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Have more questions about Freeport-McMoRan? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan

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Notes:

  1. Copper Prices Rise as Investors Bet on Growing Demand, Wall Street Journal []
  2. The bashing of Trump’s $1 trillion infrastructure plan has begun, CNN Money []
  3. U.S. GDP Growth, Bureau Of Economic Affairs Website []
  4. OPEC Confounds Skeptics, Agrees to First Oil Cuts in 8 Years, Bloomberg []