Shares in copper miner Freeport-McMoRan (FCX -0.13%) dropped 5.9% today. The move was caused by a general sell-off in businesses tied to cyclically aligned commodities such as oil, aluminum, nickel, zinc, and of course, copper. When the market worries about global growth prospects, the first thing to get sold off are these commodities mainly because all it takes is a marginal change in demand to negatively impact prices.
There's no way to get around the fact that when copper prices fall, Freeport's stock will suffer. There's good reason for this, not least, as management has previously outlined, EBITDA sensitivity of $430 million to every $0.10 change in the price of copper. So when copper drops around $0.13 in one day as it did today, it's hardly surprising that Freeport stock got sold off.
That said, Freeport is still profitable at a price of $3.73 per pound of copper. Moreover, the market may well be taking a very short-term view and overreacting to near-term news flow. According to a Bloomberg article from Wednesday quoting Freeport CEO Richard Adkerson, the recent fall in the price of copper is negatively impacting "supply development" even as a new "era of demand" takes place with the transition to electric vehicles and renewable energy sources. This view is backed up by an S&P Global report from this summer that points out that a "looming supply gap" is coming due to a combination of strong demand and underinvestment in mining assets. As such, the long-term picture continues to look bright. Still, that won't stop Freeport and the rest of the sector from selling off if prices weaken over the near term.