Copper’s Fix: It’s Time to Reassess Your Investments.

The copper market has seen a big uptick in 2024, with prices soaring more than 20% from mid-February to the end of May. But shortly thereafter, rising global inventories and weak U.S. jobs data pushed copper prices below $10,000 per metric ton on the London Metal Exchange (LME).

Meanwhile, COMEX copper futures continued their downward trend. In June, the price fell below $4.50 per pound.is near its lowest level in more than a month, completely erasing May’s gains that pushed copper prices to a record high of $5.2. These price declines are primarily due to reduced short-term demand.

After the official Manufacturing Purchasing Managers’ Index (PMI) shows: Unexpected contraction of China’s manufacturing sectorTrade data for the period showed copper ore imports fell 7.1% despite an earlier price surge as refiners increasingly turned to scrap to maintain production. As a result, Chinese inventories rose to their highest level since 2020, surpassing seasonal trends that typically favor declines.

Accordingly, the Shanghai bonded warehouse delivery price has been maintained at a discount compared to the LME for two consecutive weeks. In addition, the LME 3-month contract Almost 12% loss Because it hit an all-time high of $11,104.50 on May 20, 2024.

Nonetheless, copper prices have risen about 15% so far this year, fueled by speculation of an imminent shortage. The speculation has been fueled by copper’s critical role in electrification, particularly grid-scale energy and data center infrastructure, and the challenges associated with starting new projects for fresh ore supplies.

optimistic long-term trend

A chart of long-term COMEX copper futures dating back to 1971 shows that before 2005, futures had never topped the $1.6475 per pound level. However, market dynamics have changed significantly since then, with copper prices not falling below $2 since early 2016 and remaining above $3 per pound since October 2020. The price action pattern indicates that copper prices hit new all-time highs with each correction.

Likewise, the long-term London Metals Exchange (LME) copper chart shows a bullish technical pattern.

Overall, this pattern suggests that copper prices are experiencing a robust and sustained upward trend due to increasing demand, limited supply, and copper’s important role in a variety of industries. Despite short-term volatility, this long-term bullish trend represents a positive outlook for copper investments.

However, the recent correction has caused investors to re-evaluate their positions in copper stocks including: Freeport-McMoran (FCX) and Southern Copper Corporation (SCCO)We consider both current risks associated with future growth potential.

Freeport-McMoran (FCX)

With a market capitalization of $69.76 billion, Freeport-McMoran (FCX) It is a prominent metal company focusing on copper. The company manages seven copper operations in North America: Morenci, Bagdad, Safford (including Lone Star), Sierrita, Miami, Arizona, and Chino and Tyrone, New Mexico. FCX also operates a copper smelter in Miami, Arizona.

FCX has a potential expansion project that would surpass the concentrator capacity of its Baghdad operation in northwest Arizona. Baghdad’s reserve forces, with a life expectancy of more than 80 years, support expanded operations. By the end of 2023, the company will finalize a technical and economic study that presents the opportunity to build a new enrichment facility that could increase annual copper production by 200 to 250 million pounds, exceeding Baghdad’s current production.

At its Safford/Lone Star operation, FCX is completing a project aimed at increasing copper production from oxide ore to 300 million pounds per year. This is an expansion from the initial design capacity of 200 million pounds per year.

FCX for the first quarter ended March 31, 2024 Copper sales were £1.1 billion.This is 11% higher than the January 2024 estimate of £1 billion and 33% higher than the previous year’s quarter. This primarily reflects PT-FI’s higher mining and milling rates and ore grades. Sales increased 17.3% year over year to $6.32 billion.

Additionally, the FCX copper mine’s average unit net cash cost was $1.51 per pound, lower than the January 2024 estimate of $1.55 per pound and the first quarter of 2023, primarily reflecting PT-FI’s increased copper production. The company’s operating cash flow during the quarter was $1.9 billion, with net working capital and other uses of $100 million. As of March 31, 2024, cash and cash equivalents totaled $5.2 billion.

“Our first quarter results reflect the execution of our strong operating plan, consistent with our long-standing focus on operational execution,” said Kathleen L. Quirk, President of FCX.

“Copper market fundamentals are positive. This is due to copper’s increasingly important role in the global economy and limited supply to meet growing demand. Freeport is strongly positioned for the future as a leading copper producer with multiple options for future growth and an experienced team with a track record of achievement,” Quirk added.

Moreover, the Company’s financial policy is consistent with its strategic objectives of maintaining a strong balance sheet, providing cash returns to shareholders, and pursuing future growth opportunities. FCX Board of Directors March 27, 2024 Declared a cash dividend of $0.15 per share. Payment will be made to shareholders of record as of April 15, 2024 for shares of common stock paid on May 1, 2024.

In 2024, the company’s revenue is expected to be approximately 4.15 billion pounds of copper, with unit net cash costs expected to average $1.57 per pound of copper. FCX also expects operating cash flow this year to be nearly $7.4 billion, excluding $200 million in working capital and other purposes.

The Street expects FCX’s revenue and EPS to hit $25.26 billion and $1.63 for the fiscal year ending December 2024, up 10.5% and 5.8% year-over-year, respectively. What’s more, the company has topped consensus revenue estimates in all four subsequent quarters.

FCF stock has surged more than 30% over the past six months and about 31% over the past year. However, the stock price has fallen nearly 5% over the past month.

Southern Copper Corporation (SCCO)

The market capitalization is $84.35 billion, Southern Copper Corporation (SCCO) Engaged in mining, exploration, smelting and refining of copper and other minerals. The company operates the Toquepala and Cuajone open pit mines, smelter and refinery in Peru. There is La Caridad, an open-pit copper mine in Mexico, along with a copper ore concentrator, SX-EW plant, smelter, refinery and rod mill.

The company also operates an open-pit copper mine, Buenavista, two copper concentrates and two SX-EW plants in Mexico.

city First quarter For the year ended March 31, 2024, SCCO’s net sales were $2.6 billion, an increase of 13.3% compared to the prior quarter. This growth was primarily driven by surges in sales of copper (+9.6%) and silver (+15.3%) and higher metal prices for all products. Operating cash costs per pound of copper decreased 14.2% quarter over quarter.

In particular, copper production increased by 6,181 tons (+2.6%) compared to the previous quarter and by 16,998 tons (+7.6%) compared to the same period last year. Year-over-year growth was primarily due to an increase in copper (+12.7%) from concentrate production from all mines, including 2,158 tonnes of copper produced from the new zinc concentrate.

Additionally, SCCO’s operating profit increased 37% year over year to $1.19 billion. The company’s net income was $736 million, or $0.95 per share, an improvement of 65.4% and 63.8%, respectively, quarter-over-quarter. Adjusted EBITDA increased 34.3% year over year to $1.42 billion.

Cash inflows from operating activities were $659.9 million, a 22% increase over the $540.9 million reported in the fourth quarter of 2023. This improvement was due to robust operating cash generation driven by increased revenue and effective cost management measures. As of March 31, 2024, the company had cash and cash equivalents of $1.25 billion, compared to $1.15 billion as of December 31, 2023.

SCCO Board of Directors, April 19, 2024 A quarterly stock dividend of 0.0104 shares was declared. Common stock payable on May 23, 2024 for shareholders of record at the close of business on May 8, 2024.

In its last earnings call, SCCO stated: We see strong market demandThis is driven by a resilient U.S. economy and new demands for decarbonizing technologies and artificial intelligence. These factors will strengthen long-term copper demand and play an important role in maintaining favorable copper prices. Demand is expected to increase by close to 2.5% this year.

Analysts expect SCCO’s second quarter (ending June 2024) revenue and EPS to hit $2.63 billion and $0.90, up 14.4% and 27.7%, respectively, from the prior year. Additionally, the company’s revenue and EPS for fiscal 2024 are expected to reach $11.01 billion and $3.89, up 11.3% and 25.1%, respectively, from the previous year.

Shares of SCCO have surged more than 44% in the past six months, and about 54% in the past year. However, due to recent adjustments, the stock price has fallen by about 10% over the past month.

conclusion

The recent correction in copper prices, which has seen a downward trend since its all-time high on May 20, can be attributed to a number of factors affecting supply and demand dynamics in the market. Copper prices fell due to increased global inventories and evidence of lower near-term demand, particularly an unexpected contraction in China’s manufacturing sector.

For investors, this correction serves as a reminder of the volatility inherent in commodity markets. However, this does not necessarily negate the long-term bullish trend driven by rising demand, limited supply, and copper’s important role in a variety of industries, particularly electrification and decarbonization initiatives. Despite short-term fluctuations, the fundamental drivers underpinning copper’s growth trajectory remain intact.

Investors should consider strategies for navigating periods of high volatility. Diversification across different assets can help mitigate risks associated with individual products or stocks. Moreover, hedging options, such as futures contracts or options, can provide protection against adverse price movements.

For FCX and SCCO, solid operating performance and strategic initiatives position them for solid growth over the long term. However, investors must remain vigilant, continually reassessing their positions and adjusting their strategies as market conditions change. They can navigate copper price fluctuations by staying informed and adopting a variety of approaches while leveraging long-term potential.