Insights

Why Shares in Freeport-McMoRan Fell Today

What happened

Shares in copper miner Freeport-McMoRan (NYSE: FCX) declined by nearly 5% by mid-afternoon today. The move comes after a copper price dip following some disappointing economic data from China. The country is often seen as the swing factor in determining the price of economically sensitive commodities, and the industrial metal is definitely one of those. 

The bad data comes from China’s closely followed survey of purchasing managers index (PMI), published by the National Bureau of Statistics. The reading of 49 for July (a reading above 50 indicates expansion) disappointed the market and suggested that China’s weak patch would continue.

The debate around the country’s growth trend puts the bulls (who argue that growth will bounce back after the COVID-19 lockdowns are eased) with the bears (who believe it’s more of a structural problem and point to ongoing issues in the housing market). Today the bears have the upper hand. 

So what

China is so important to copper, and commodities in general, that it came up directly on Freeport’s last earnings call. Investors are concerned that China’s copper demand is tailing off. Still, CEO Richard Adkerson told investors he hadn’t heard of “unusual trading ” in China, and to his knowledge, Chinese commodity trading companies hadn’t been building inventory. They are likely to build inventory if sales drop off, but that doesn’t seem to have happened yet, according to Adkerson on the call.

Now what

Investors in cyclical commodities will have to keep an eye on developments and hope that the global economy holds up. If the bulls are correct, then China’s manufacturing growth should bounce back, making copper prices higher.

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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