Freeport: Chinese Copper Smelters to Lower Treatment Charges

Diversified miner Freeport-McMoRan (NYSE:FCX) recently came to an agreement with two major Chinese smelters to lower treatment and refining charges for 2020, pushing prices to a nine-year low. 

Freeport inked two separate deals with Jiangxi Copper (OTC Pink:JIAXF,HKEX:0358) and Tongling Nonferrous Metals (SZSE:000630), both arriving at the same price — US$62 per metric ton and US$0.06 per pound. This cut represents a 23 percent decrease from the 2019 prices, which were US$80.80 per metric ton and US$0.08 per pound. 

Copper’s low supply was the driving factor in the deal, as it forces smelters to compete for materials, driving prices down. According to Reuters, Chile’s Codelco, the world’s largest copper producer, will follow the precedent set by the Freeport-Jiangxi deal. 

It’s been a busy year for Freeport, with the company posting a net loss attributable to common stock of US$131 million during Q3 2019 as it focused on improving its assets. However, the miner hopes those improvements will pay off soon. Earlier this year, Freeport announced that it had cleared its two-year plan in order to focus on expanding the Grasberg copper-gold mine. The company also announced that it would introduce machine-learning technology at its mines. 

Copper has been a hotly discussed commodity, as more and more analysts forecast a jump in price as decarbonization takes off; the red metal is particularly important to electrification.

FocusEconomics’ October report shares this optimism for the red metal in the medium-term, reporting that copper’s price will likely grow more popular in demand due to green technologies while global output remains low. In the short-term, however, FocusEconomics’ panel of analysts projects prices remain below the US$6,000 per metric ton mark. 

Copper’s price has had many factors influence it. Currently, the US-China trade war drags on and affects the global economy and protests in South America pull output and exports down. So far, the US-China trade war has been pulling copper prices up, and copper output has not yet been affected by the South American protests.

Since January, Freeport’s share price has increased by 5.74 percent, trading for US$10.94 on November 21 at 11:07 a.m. Meanwhile, in London, copper traded for US$5,872 per metric ton on November 20. 

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Securities Disclosure: I, Sasha Dhesi, hold no direct investment interest in any company mentioned in this article.