In many ways, lithium miner Albemarle (ALB 3.33%) and copper miner Freeport-McMoRan (FCX +3.37%) have a lot in common. Both are beneficiaries of the growth of electric vehicles, and both are mining metals that could rise in price due to an imbalance of demand over supply. That said, Freeport McMoRan is a better stock to buy. Here's why.
Albemarle and Freeport-McMoRan
There's no debate over why the market has gotten excited about lithium in recent years. Its use in electric vehicle (EV) batteries is the key marginal demand driver for the metal and, ultimately, Albemarle's earnings. An example of the level of Albemarle's sensitivity to EV demand comes from a quick look at its sharp decline in revenue in 2024.
NYSE: ALB
Key Data Points
This is because the price of lithium has come down from above $80 a kilogram at the start of 2023 to around $15 a kilogram at the start of 2024 and to just above $10 a kilogram at the start of writing. The decrease is occurring due to reduced expectations for electric vehicle (EV) production in 2024. For example, S&P Global cut its 2024 EV production forecast by 10% from January to June.
ALB Revenue (TTM) data by YCharts
Freeport-McMoRan is more diversified
In comparison, there's much less risk in end demand for copper and, ultimately, Freeport-McMoRan because its end demand is more diversified. While it's true that EVs are a significant part of the copper demand story (the average EV has three to four times the amount of copper than an internal combustion engine vehicle), there's much more to the long-term copper demand story.
For example, copper is an integral part of the "electrification of everything" megatrend. This encompasses EVs and EV charging networks, renewable energy (notably solar power), smart buildings/infrastructure/grids, industrial automation, and the electrical transmission and distribution infrastructure needed to support these technologies.
In addition, traditional sources of copper demand, such as construction, industrial, consumer products, and electrical infrastructure, must be considered.
As such, copper and Freeport-McMoRan are much less exposed to demand from one industry than lithium and Albemarle are.
NYSE: FCX
Key Data Points
Supply is also a factor
It's time to turn to the supply side after discussing the demand side. While both lithium and copper bulls can point to industry research that supports the idea of insufficient supply relative to demand, there are a couple of differences.
There is a lot of lithium in the world, and more than a few governments are actively trying to encourage investment in the industry. Moreover, the geopolitical environment differs greatly from when the last U.S. administration took over. Rising geopolitical tensions might encourage lithium mining to ensure the provision of an essential resource for EV production.
For example, the European Union, Rio Tinto, and the Serbian government continue to plan for a major mine in the non-EU country. Meanwhile, Chile is encouraging investment in lithium, and the new regime in Argentina is aggressively trying to ramp up capacity. In addition, Australia, the U.S., and Canada are all expanding production.
Image source: Getty Images.
The point is that supply growth might not be curtailed by low prices as much as many investors think. There's a strategic need to ensure lithium supply in local markets, such as lithium production in China for EV production in China or the U.S. trying to reduce reliance on lithium from China.
Freeport-McMoRan stands well placed in copper
I've discussed Freeport-McMoRan in more detail elsewhere. The miner is in a powerful position regarding copper. Its leaching initiative offers a low-cost way to recover a mine's worth of copper from existing stockpiles. For example, management believes it can reach an annual run rate of 800 million pounds of copper over time, compared to an estimated sales volume of 4.1 billion pounds in 2024.
It also has expansion projects in the pipeline (notably in the U.S.) with which it can ramp up production to meet higher demand and prices. Meanwhile, its low-cost operations in Indonesia continue to bear fruit, with management hoping to extend mining rights beyond 2041.
Image source: Getty Images.
In addition, it's attractively priced and highly profitable based on the current copper price, while Albemarle lost money in the first half of 2024. Investing in Albemarle is fine if you want to go "all-in" on lithium and EV demand, but Freeport-McMoRan has exposure to a wider range of exciting megatrends, including EVs.
Putting all these factors together, Freeport-McMoRan is the more attractive stock.
