Shares in copper miner Freeport-McMoRan (NYSE: FCX) rose by 12.7% in September, according to data provided by S&P Global Market Intelligence. The rise came after China announced a series of measures to stimulate its economy in the face of a weakening housing market and pressure on its economic growth target of about 5%.
China’s appetite for copper is the swing factor in determining global demand, and the announcement of a raft of monetary stimulus measures (including interest rate cuts, mortgage rate cuts, and reducing banks’ reserve requirement ratios) will add liquidity to China’s financial system. The measures are also intended to stabilize China’s property and construction markets.
All of this is good news for copper demand and Freeport-McMoRan. Indeed, the price of copper started trading in September at around $4 per pound and ended at around $4.42 per pound. For an example of what that means to Freeport-McMoRan, management argues that all things being equal, the company will generate earnings before interest, taxes, depreciation, and amortization (EBITDA) of $11 billion in 2025/2026 based on a price of copper of $4 per pound, rising to $13 billion at a price of $4.50.
As such, it’s hardly surprising that the market decided to take a more positive view of the stock as China’s measures boosted the price of copper.
Image source: Getty Images.
The stimulus measures in China are good news, and with the interest rates likely moving lower in the U.S., the environment supports copper demand. The traditional cyclical demand element includes construction and industrial/consumer products. Still, increasingly significant secular demand is growing from the electrification of everything and clean energy megatrends.
Freeport-McMoRan stands well placed to benefit. Not only does it have existing plans to ramp up copper sales volumes from 4.1 billion pounds in 2024 to 4.3 billion pounds in 2026, but it is also launching a leaching initiative that management believes can eventually recover 800 million pounds of copper a year from existing stockpiles.
Image source: Getty Images.
In addition, it has expansion projects in its pipeline in Arizona, Indonesia, and Chile, which enable it to expand production to meet future demand. This is a significant plus as there are increasing question marks around the industry’s ability to meet demand. All told, Freeport-McMoRan remains an excellent stock to play favorable trends in the price of copper.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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