Shares of Freeport-McMoRan Inc. (NYSE:FCX) fell 9.8% in August, which was a volatile month for the copper market.
Copper prices sold off 3% at the beginning of August after the trade dispute between the U.S. and China intensified amid reports that the Trump administration had proposed raising tariffs on $200 billion worth of Chinese goods from 10% to 25%. The concern was that the escalating trade war would impact global growth, which could dampen demand for copper.
Copper continued selling off during the month, enduring its worst day of the year on Aug. 15, when it declined 4.4% and fell to a 13-month low, which pushed it 22% below the four-year high set in June. Driving that sell-off were continued worries that the global economy would slow down due to the intensifying trade war between the U.S. and China.
Copper prices would go on to rebound a bit by month end due to better-than-expected inventory data, though they remained 18% below the peak reached in June. The reason this sell-off had a notable impact on Freeport-McMoRan's stock is due to the company's leverage to copper prices. The company noted in a recent investor presentation that it expected to generate $4.3 billion in operating cash flows this year, assuming copper averaged $2.75 per pound in the second half of 2018. However, the company also pointed out that each $0.10 per pound change in copper during the second half would impact cash flow by $185 million. While copper ended the month right around that $2.75-a-pound level, the concern is that it could fall well below that level if the escalating trade war stunts global growth, which would impact Freeport-McMoRan's cash flow.
As one of the largest copper producers in the world, Freeport-McMoRan makes most of its money producing that metal. Accordingly, its stock tends to ebb and flow with the price of copper. While there are some near-term concerns for copper prices, the longer-term outlook for the metal is much more bullish.