Shares in copper miner Freeport McMoRan(NYSE: FCX) rose by 16.6% in the week to Friday morning. The move comes after China's central bank took some widely anticipated measures to stimulate growth in the Chinese economy. In turn, that encouraged investors to buy copper -- China is seen as the swing factor in demand for copper -- and the price of copper rallied from around $4.27 per pound at the start of the week to $4.58 per pound at the time of this writing.
How Freeport McMoRan benefits
To get a flavor of how movements in the price of copper impact Freeport, management states that its earnings before interest, taxation, depreciation, and amortization (EBITDA) in 2025/2026 will change by $430 million with every $0.10 per pound movement in the price of copper. That's a significant change, as Wall Street analysts are forecasting an EBITDA of $10.6 billion for the company in 2024.
Why copper prices and Freeport McMoRan stock can move higher
The move highlights one of the traditional critical drivers of the price of copper: demand from the metal's broad-based exposure to cyclical growth in the industrial economy. It's a metal commonly used in construction (China is trying to stabilize its real estate/construction industry by injecting liquidity into its banking system), as well as transportation, electricity networks, and industrial and consumer products.
Image source: Getty Images.
In concert, copper is also an essential metal in secular megatrends such as the clean energy transition (widely used in electric vehicles, charging networks, renewable energy, and the grid needed to connect renewables) and the electrification of everything (Internet of Things, smart buildings/infrastructure, AI-led data center investment, etc.).
That broad-based exposure makes copper an attractive commodity to buy, and Freeport McMoRan is ideally placed given its mix of existing production, expansion capability, and an exciting leaching initiative.
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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.
