Why did Freeport-McMoRan Stock Lose 30% In Value?

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The shares of Freeport-McMoRan (NYSE: FCX) have lost 30% in value since early April, after observing a year-long rally, primarily due to renewed restriction measures in China – raising concerns over copper’s demand in the coming years. Despite the Russia-Ukraine war causing volatility in the energy markets and hurting discretionary spending, Freeport maintained its full-year sales and cash flow projections. Construction and electrical applications sectors account for nearly half of copper’s demand, followed by consumer products and transportation. Investments in the renewable energy sector including electric vehicles, charging infrastructure, and solar & wind power plants are key markers supporting long-term copper demand. Trefis highlights the historical revenue trends in Freeport-McMoRan’s revenues across key operating segments in an interactive dashboard analysis.

Copper demand to grow in 2022 and 2023

In 2021, Freeport reported 3 billion pounds of total copper sales at an average price of $4.33/lbs. Strong demand and supply-chain issues have assisted Freeport’s top and bottom line in recent quarters with the company registering a 60% (y-o-y) increase in operating cash flow in Q1 2022. Due to copper’s diverse use across multiple industries, its demand can be referenced for world economic growth. Per IMF, the global output is likely to increase by 3.6% in 2022 and 2023 with China & India as focal points. Thus, copper demand is likely to remain strong despite the uncertainty caused by the conflict in Europe.

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Comparing Freeport’s projections with The World Bank outlook

In Q1 filings, the company reiterated its earlier projected annual copper sales figures for 2022. Comparing 4.25 billion pounds of projected sales in 2022 with 3.2 billion pounds in 2019, demand is nearly 30% more than pre-pandemic levels. Per the World Bank’s recent commodity market outlook, copper prices are expected to be more than $4/lbs until 2024. Currently, the copper futures price for contracts expiring in December 2023, December 2024, and December 2025 are above $9,000 per ton ($4 per pound) – comparable to Freeport’s average realized price of $4.33/pound in 2021. Low inventories, strong durable goods demand, and labor disputes in Chile (the world’s largest copper producer) are key factors assisting copper prices in recent times.

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 Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 FCX Return -12% -15% 169%
 S&P 500 Return -3% -16% 78%
 Trefis Multi-Strategy Portfolio -7% -23% 205%

[1] Month-to-date and year-to-date as of 5/10/2022
[2] Cumulative total returns since the end of 2016

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