What happened
Shares in copper miner Freeport-McMoRan (FCX -1.96%) were down by 2.5% as of midday Tuesday. The move comes after a strong period for copper mining stocks, buoyed by bid activity in the sector.
Today's down move is a reminder that the demand for copper is reliant on economic growth. So when the market prices in higher interest rates because inflation data in August was worse than expected, it's a cause for concern. If inflation rises, it's more likely the Federal Reserve will hike interest rates, and higher interest rates usually mean lower economic growth. That's bad news for an industrial metal like copper that's used across the economy.
So what
Such volatility is perfectly normal around inflation data, not least in the current environment, and it's not surprising to see a sell-off in energy, metals, and mineral commodities as a consequence.
Still, the long-term picture really matters, and Freeport investors have a reason for optimism here. Underlying demand does depend on the economy, but history suggests growth will bounce back in time. Meanwhile, the long-term demand trend from the transition to electric vehicles, renewable energy, and electrification implies a marginal increase in demand.
At the same time, the difficulty of acquiring mining permits due to environmental concerns means supply might be constrained, too.
Now what
It's too early to call off the idea that a long-term up cycle in copper isn't on the cards. After all, it's just one piece of negative economic data, and the long-term case for copper remains positive.
