Freeport-McMoRan (NYSE:FCX) is among the world’s largest producers of copper and with new tariffs recently announced, FCX may be in a position to benefit as prices for copper rise.
Will FCX benefit from tariffs, and does the stock look like an attractive buy at current share prices?
Proposed Copper Tariffs
In July, Donald Trump announced a new tariff of 50% on copper imports, citing the metal’s strategic importance for everything from basic ammunition to the most advanced electronics and missile systems. This tariff is set to take effect on August 1st, the same day on which multiple other new tariffs are expected to begin.
Such a tariff, at least in the short term, has the potential to send the price of copper sharply higher if enacted.
The US imports roughly half the copper it uses, and current estimates suggest that by next month, copper prices in America could be as high as $15,000 per metric ton, compared to about $10,000 outside the US.
This assumes, of course, that the tariff is implemented at the proposed 50 percent rate.
How FCX Stands to Benefit
This higher price for copper in the United States if the 50 percent tariff goes through could present an opportunity for Freeport-McMoRan, which has seven copper mines located in Arizona and New Mexico.
In addition to its active production, the mining firm also has undeveloped resources that can be exploited if and when economic conditions warrant additional production.
If the domestic price of copper soars due to a tariff barrier on imported copper, FCX and other American copper producers could see much higher prices for the metal they produce without a proportionate increase in production costs.
The Risks of Buying FCX on Tariff News
Although FCX could certainly do well amid rising copper prices, it’s important to recognize that there are also pitfalls to buying it for its potential to capitalize on higher tariffs. To begin with, the Trump administration has established a pattern of threatening high tariffs and either settling for much lower rates or delaying their implementation.
FCX is already trading higher on expectations of rising copper prices, and the stock is now priced at over 38 times earnings. This could leave room for a bit of a downward correction if the final version of the tariff on copper doesn’t increase prices as much as the market is currently expecting.
With that said, it may be useful to acknowledge that the stock is trading very close to the analyst consensus price target of $48.31 and may be more or less fairly valued.
Even more importantly, copper prices may only spike for a relatively short period of time if the tariffs are implemented. While a 50 percent tariff would undoubtedly increase the price of the metal, it’s likely that it would gradually fall back off again as domestic producers like Freeport-McMoRan adjusted to the new market conditions.
This even appears to be the expectation of the market at large, as copper stocks failed to hold onto the high points they reached in the immediate wake of the tariff announcement. Even so, it’s likely that a tariff could cause prices to remain elevated for as long as a couple of years as American producers increase their output.
Is FCX a Good Buy Even Without Tariffs?
While there’s definitely some uncertainty surrounding whether and how new US tariffs on copper will shape up, there are several other reasons investors may want to consider FCX.
With or without new trade barriers, FCX could benefit from secular trends in demand for copper. Driven by increased use in consumer electronics, EVs and other products, demand for copper is expected to increase by about 70 percent from 2021 through 2050.
With its large domestic reserves, FCX is in a very strong position to benefit from this rising demand over the decades.
Also don’t skip past FCX’s dividend, which currently stands at 1.3 percent. Despite the fact that the quarterly dividend has remained at $0.15 since 2022, the stock still offers a respectable yield even in the absence of regular dividend growth.
The fact that the dividend payout ratio is still under 50% also appears positive for investors seeking stable, reliable income, as the business doesn’t appear to be at much risk of failing to pay its dividends in the foreseeable future.
Finally, FCX isn’t a one-trick pony when it comes to its mining operations. In addition to its copper portfolio, FCX is also the largest producer of molybdenum in the world.
Like copper, demand for molybdenum has also been trending upward, driven by its usefulness in creating specialized alloys and for medical applications.
FCX also owns a nearly 50 percent interest in an extremely large gold and copper mine in Indonesia. This gives the business exposure to gold at a time when prices for the precious metal are still hovering around all-time highs.
Is FCX a Buy Now?
FCX and the copper market in general are in something of an uncertain period at the moment. The new copper tariff, announced just days ago, could easily be modified or delayed, preventing prices for the metal from soaring as expected.
Even if they are implemented, it seems likely that prices could eventually equalize after a brief period of spiking. These risks don’t appear existential to FCX, but the stock may be in for a period of elevated risk as the market tries to figure out what trade conditions will look like in the long run.
For the time being, investors may want to wait and see what happens with regard to the pending copper tariffs. The US government’s recent tendency to back off of high tariff proposals could create substantial volatility in FCX shares, especially given their currently somewhat high valuation.
With that said, FCX has the hallmarks of being a decent play on rising long-term copper demand for investors with a long time horizon. Once a bit more clarity emerges on how tariffs could affect copper prices going forward, Freeport-McMoRan may be worth looking at for investors hoping to capitalize on copper and other metals over the coming years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.