Shares of Freeport-McMoRan (FCX) and other major copper miners took a hit after Goldman Sachs ended its long-standing recommendation to buy copper and significantly reduced its price forecast for the metal.
Goldman Sachs now expects copper to average $10,100 per ton by year-end, down from its previous forecast of $15,000. In a note released Monday, the bank cited higher copper inventories in China and a weak property sector as the primary reasons for delaying the anticipated price rally.
Copper prices surged to record levels in May due to increased demand from utilities upgrading their grids, the growth of electric vehicles, and the expansion of data centers powering artificial intelligence applications. At the same time, supply was constrained. Earlier this year, Goldman Sachs described the copper supply as the "tightest" among many commodities.
However, copper prices have since dropped by approximately 19%, as production remained high while demand from China, the world’s largest consumer of copper, weakened. "With China typically responsible for two-thirds of commodities demand growth before the pandemic, we believe it’s challenging to build significant deficits in these markets without strong China demand," wrote Goldman analysts Samantha Dart and Daan Struyven.
As a result, companies heavily reliant on copper mining are facing significant pressure. Freeport-McMoRan's stock fell 7.6%, making it the second-worst performer in the S&P 500 on Tuesday. The stock is now on track for its largest percentage decrease since June 2022 and has fallen below its 200-day moving average of $44.42, a critical support level. A breach below this level suggests the stock may struggle to maintain its value.
Mining company stocks generally suffer when copper prices decline, as lower sales directly impact earnings and margins. Rio Tinto (RIO) shares were down 4.7%, while BHP Group (BHP) saw its stock drop by 5.7%. Investor interest in commodities has also waned, with the total amount of money invested in commodity futures contracts decreasing by $29.17 billion to $1.34 trillion for the week ending August 30—a six-month low. According to JP Morgan, interest in markets for crude oil, natural gas, corn, silver, and copper has declined.
The SPDR S&P Metals & Mining exchange-traded fund (ETF) also fell 5.2% on Tuesday, marking its largest percentage decrease since March 2023.
Despite the downturn, there are some positive signs on the horizon. One is the likelihood that the Federal Reserve will cut interest rates this month. Lower rates typically encourage business spending, which could, in turn, boost demand for copper.
While Goldman Sachs has closed out its bullish position on copper, there are still some optimistic voices in the market. Jeff Currie, chief strategy officer for energy pathways at Carlyle Group and a former Goldman analyst, maintained last month that we are entering a new commodity supercycle.
