Freeport-McMoRan Inc. Q3 2017 Earnings Preview: Favorable Environment for Copper Prices and Stability in Indonesia to Drive Earnings

October 24th, 2017 by Trefis Team
-16.98%
Downside
49.15
Market
40.81
Trefis
FCX: Freeport logo
FCX
Freeport

Freeport-McMoRan Inc. (NYSE: FCX) is set to announce its Q3 2017 results and conduct a conference call with analysts on 25th October, 2017. [1] The consensus EPS estimate is high for the company even though the company has been missing the market expectation since the last four quarters. The higher expectations are based on the grounds of the improved pricing environment for copper and the recent stability gained by the company with respect to its negotiations with the Indonesian government. Below is summary of the consensus estimates of the company’s Q3 2017 earnings:

Favorable Pricing Environment for Copper

Copper prices have gained roughly 22% since the beginning of the year, recently reaching its 3-year high since March 2014.  This surge in copper prices is mainly attributable to a favorable demand condition in China, which is the world’s largest copper consumer.

Relevant Articles
  1. Will Freeport Stock Recover To Pre-Inflation Shock Highs Of $52 Per Share?
  2. What To Expect From Freeport’s Q2 Results
  3. How Is Freeport Stock Faring Amid Volatile Copper Prices?
  4. Copper Prices Have Recovered A Bit. Is Freeport Stock Worth A Look?
  5. Lower Copper Prices Will Weigh On Freeport’s Q3 Results
  6. What’s Happening With Freeport-McMoRan Stock?

Source: LME website

China accounts for roughly 45% of the global copper demand and meets its consumption requirement by both internal production and through imports. The Chinese officials recently announced their intention on banning the import of scrap copper into China from the end of 2018 in an effort to clean its highly polluted environment. [2] Demand for scrap copper from China is in much greater quantity than that for refined copper, however, the increased likelihood of the ban, has in turn, shifted the consumer demand for high quality refined copper as a substitute in the Chinese economy. September copper imports were higher by 6% Y-O-Y as per the latest data released by the Chinese customs department, thus aiding to a boost in global copper prices. [3]

The dip in prices seen in mid-September was owing to the concerns over the outcome of the latest Federal Open Market Committee (FOMC) meeting and weak Chinese growth data. However, the latest IMF projection of 6.8% growth in the Chinese economy for 2017 has settled the prevailing uncertainty, thus supporting the recovery in copper prices. [4]

Unanimous Agreement on Grasberg Mine

The company in August announced its final framework of agreement with the Indonesian government with respect to its mining rights of Grasberg Mines. [5] Freeport’s operations have suffered significantly in the previous quarters due to the uncertainty revolving around the outcome of its negotiations with the Indonesian government. The recent consensus reached between the parties would provide the company long term fiscal and legal stability through 2041. Although, the course of divestments are yet to be finalized, both the parties are most likely to abide by their agreement and execute the deal before 2018. [6]

Copper accounts for roughly 50% of Freeport’s total revenue. Improved copper prices along with the secured closure of its negotiation with respect to its largest mine in Indonesia would prove to be favorable for the company. Although the factors boosting copper prices are not sustainable, enhanced prices would most likely provide a boost to the company’s latest quarter earnings.

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 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

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Notes:
  1. FCX 3Q 2017 Conference Call, Freeport Website [↩]
  2. China reviewing copper scrap imports; may call halt in 2018: notice, Reuters [↩]
  3. China’s September copper concentrates, copper metal imports at half-year high, Metal Bulletin [↩]
  4. IMF raises China growth forecast for 2017 to 6.8 per cent, China Economy [↩]
  5. Freeport-McMoRan Announces Framework For Agreement With Indonesian Government Regarding Long-Term Operating Rights For PT Freeport Indonesia, Freeport-McMoRan News Release [↩]
  6. Indonesia’s finance chief says mega-mine deal with Freeport will soon be resolved, CNBC [↩]