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Copper And Freeport-McMoRan: Back In The Buy Zone?

By Andy HechtStock MarketsJul 20, 2021 21:36
au.investing.com/analysis/copper-and-freeportmcmoran-back-in-the-buy-zone-200478026
Copper And Freeport-McMoRan: Back In The Buy Zone?
By Andy Hecht   |  Jul 20, 2021 21:36
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This article was written exclusively for Investing.com.

  • FCX is a leading copper producer
  • The stock exploded higher since the March 2020 low
  • Copper has corrected, pushing FCX lower
  • Goldman Sachs: copper is resting; will continue its ascent
  • Levels to watch in FCX - Buy the dip

During May 2021, three commodities that trade on US futures exchanges rose to new all-time highs.

Lumber received lots of attention as the price moved above the $1700 per 1,000 board feet level. Palladium, the platinum group metal and critical ingredient in the automobile catalytic converters that clean toxins from the environment, moved above the $3,000 per ounce level. Copper, the red nonferrous metal that is a building block of infrastructure and an ingredient in the new green revolution when it comes to EVs and other environmentally friendly products, moved to nearly $4.90 per pound.

The move in copper was a bonanza for the companies that extract copper ores from the earth’s crust. Freeport-McMoRan Copper & Gold (NYSE:FCX) is one of the world’s leading copper producers, and its stock price has soared since reaching a bottom in March 2020. After the recent correction from the highs, copper and FCX could be back in the buy zone.

FCX is a leading copper producer

Freeport McMoRan is one of the world’s leading copper producers. In 2020, Codelco, the Chilean copper mining giant, led the world in output, producing 1.73 million metric tons of the base metal. BHP Billiton (NYSE:BHP), the Anglo-Australian mining giant, was close behind with 1.72 million tons of copper production. Freeport McMoRan was third with 1.45 million tons, ahead of fourth-place Glencore (OTC:GLNCY), with 1.26 million tons of output.

At $32.40 per share on July 19, FCX had a market cap of $47.48 billion. The stock trades an average of over 20 million shares each day and pays shareholders a $0.30 annual dividend, a 0.90% yield on the shares.

Stock exploded higher since the March 2020 low

FCX shares moved substantially higher after reaching the lowest level since early 2016 in March 2020, when the shares made a higher low at $4.82.

FCX Weekly 2019-2021
FCX Weekly 2019-2021

The chart shows the rise to a high of $44.50 per share in early May, a move of over nine times higher in fourteen months. At that time, FCX traded to its highest price since 2012.

Copper has corrected, pushing FCX lower

In May 2020, COMEX copper futures traded to an all-time high.

Copper Quarterly
Copper Quarterly

Source: CQG

As the quarterly chart illustrates, the nearby futures contract reached $4.8985 per pound, eclipsing the 2011 $4.6495 record peak. Copper corrected to a low of $4.088 on the nearby contract since the record high. At near $4.2000 on July 19, the red nonferrous metal was 14.3% below the May high.

FCX TTM Weekly
FCX TTM Weekly

Meanwhile, FCX shares corrected by 27.2% from the highs as of July 19.

Mining stocks tend to provide leveraged exposure to the commodities they extract from the earth’s crust. FCX outperformed copper on the upside as the red metals price rose from a low of $2.0595 in March 2020 to a high of nearly $4.90, or 137.8%. FCX exploded over 820% higher over the period.

Bull markets rarely move in a straight line, and copper’s correction since May has contained the price above the $4 per pound level so far.

Goldman Sachs: copper is resting; will continue its ascent

Copper is a critical requirement for the emerging green economy. Electric vehicles require copper, as do wind and solar energy. Infrastructure building in China and rebuilding in the US will increase copper demand over the coming years. Moreover, the shortage of semiconductors will increase copper demand.

Meanwhile, the lack of new copper projects presents a challenge for the metal’s supply and demand equation. It takes eight to ten years for new mine production to come online.

Goldman Sachs recently called copper “the new oil,” saying the red metal is essential for decarbonization. Goldman projects the price could soar to $15,000 per ton or higher by 2015. Copper peaked at around the $10,700 per ton level on the London Metals Exchange when the COMEX futures reached the most recent high.

Commodity Performance 2021
Commodity Performance 2021

According to a White & Case survey, "copper is expected to outperform other mining commodities in 2021, according to our survey respondents."

Levels to watch in FCX - Buy the dip

The first level of technical support in FCX shares stands at the $29.45 level, the late-March 2021 low.

FCX Weekly
FCX Weekly

Below there, support is at $24.71, the late January 2021 low. Technical resistance is at the May $44.50 high and the early-2012 $48.64 high.

Copper demand will continue to rise over the coming years. FCX provides investors and traders with leveraged exposure to the red metal. I am a scale-down buyer of FCX shares from $32.40 per share, leaving plenty of room to add more shares on price weakness.

The rising demand means that the world’s third-leading copper producer has lots of upside to go higher over the coming years.

Copper And Freeport-McMoRan: Back In The Buy Zone?
 

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Copper And Freeport-McMoRan: Back In The Buy Zone?

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