The impact of tariffs on Freeport-McMoRan’s copper production and growth

What is the impact of tariffs on Freeport-McMoRan's copper production and growth? Freeport-McMoRan[1]'s US copper production[2] would be at risk if tariffs lead to an economic recession and weak copper prices, Kathleen Quirk, the company's chief executive officer, said in an interview. "Our US mines are highly sensitive to the price of copper. If we end up with an economic recession and a weak price of copper, that could put our US production at risk at a time when we're trying to find ways to produce more," Quirk told Fastmarkets on Wednesday April 9.

"It will certainly slow our copper supply growth - the opposite of our intention to grow production in the US," she said.

High operational costs at US mines

Speaking in Santiago during the annual CESCO industry week, Quirk said that operational costs at Freeport's US mines are on average three times the cost of the company's international operations. That's mostly the result of differentials in mine grades, although currency-related inflation factors and labor are also an influence, she noted. Quirk said that Freeport's concern over the tariffs is twofold: slowing economic growth and inflation.

"Both slower economic growth and inflation hit our US mines particularly hard, because of where we are on the cost curve. Ironically, the jobs in the copper industry in the US are highly sensitive to both economic growth and the price of copper," she added.

Reciprocal tariffs and trade tensions

The US has imposed 125% tariffs on imports from China, which in turn will have 84% tariffs on imports from the US beginning at 12:01am US Eastern time on Thursday April 10. Additional reciprocal tariffs[3] by the US on 60 other countries briefly took effect, but have now been paused for 90 days; in place of the paused tariffs, a universal 10% tariff - from which copper is currently exempt - continues.

Freeport operates seven open-pit copper mines in the US: Morenci, Bagdad, Safford (including Lone Star), Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. It also operates a copper smelter in Miami. Its copper production in the US was just over 565,00 tonnes last year, while its total production was 1.9 million tonnes.

Industry challenges amid uncertain backdrop

According to Quirk, Freeport's strong position in the industry is already being impacted by the uncertain backdrop created by the trade tensions.

"Things were going really, really well for Freeport previously, given the company's strategic focus on copper, organic growth pipeline, the widespread realization of copper's importance and the opportunities we have in the US. If we have a global recession, it threatens all of that," she said. "The copper price is down, our share price is down, and it has nothing to do with our business -- it's because of the uncertainty around the tariffs.

Absent the tariffs, there is nothing that would have warranted that kind of reaction," she added.

Freeport's position on tariff objectives

Key objectives of the tariffs are reshoring and getting manufacturing jobs back to the US, Quirk noted, goals that the company supports. But a nuanced approach to tariffs would be more appropriate, she said. "Even with the tariffs on China, certain industries still can't compete, so there is a real question mark about what we're trying to achieve.

We're taking a broad-brush approach to all industries, when actually every industry has its own unique issues, and they're not being studied," she told Fastmarkets. "We support addressing unfair trade practices by other countries. But the tariffs situation is much more complicated, and it needs to be, in our opinion, more thoroughly studied before a decision is made," she said.

Section 232 investigation and tariff proposals

Additionally, copper is currently subject to a Section 232 investigation, which could see further tariffs imposed.

Freeport recently submitted comments on the Section 232 proposals, with the goal of providing additional education on the structure of the US copper industry. In the US, the company accounts for around 70% of the copper produced and around 39,000 jobs, Quirk said. "There were indications that Section 232 would move more quickly after the public comment period ended on April 1.

The downstream fabricators are advocating for no tariffs on cathode imports," she noted. "The industry appreciates the opportunity for input into policies. In talking with our customers and other industry participants, we hear concerns that things are moving too quickly for the complexity of this topic and for views to be considered," she added.

The additional cost of the tariffs will likely be passed through the supply chain, Quirk said. "The real issue is, what does this mean for demand for products? We're starting to see the impacts already," she added.

Short-term copper flow challenges

Copper has been flooding into the US in recent months in an effort to beat the potential imposition of Section 232 tariffs.

Describing the inflow of copper as a speculative, short-term trading matter, Quirk said it will not change the global economics of the market. "Recently, the COMEX copper price was over 10% higher than the [London Metal Exchange] price, and that was already having to pass through. The ups and downs of this has impacts on consumer confidence," she said.

At the same time, the US imports as much copper as it exports scrap, Quirk noted. The US is the world's largest exporter of copper scrap, with China accounting for 41.35% of the tonnages that the US shipped in 2024, US Department of Commerce data shows.

Challenges of tariffs to domestic copper production

The tariffs are being introduced amid a backdrop of a push by the US government to increase domestic production of key critical minerals, including copper. Quirk noted that copper mines are different from manufacturing facilities, and that building an integrated domestic supply chain is more complex.

"You can't just decide you're going build a comparable facility; you have to go where the resources are, and there are just not available resources in the US, unlike where we're operating in Indonesia," she said. "We have plans to invest heavily in the US to add jobs, employment and productive capacity, but that requires a healthy global economy," she added.

Limitations of US smelting capacity

Further downstream, the US had more copper smelting capacity three decades ago than it does today. Two relatively modern US copper smelters were dismantled for economic considerations decades ago, and years later, China emerged as a huge consumer of copper and built many new smelters in an effort to secure supply.

Noting that copper's strong demand fundamentals -- including those related to decarbonization, electrification and artificial intelligence (AI) -- have not changed in the last week, Quirk said the world still needs a lot of copper. But the economics of building new copper smelting capacity in the US are challenged, she told Fastmarkets. "Right now, we have only two smelters operating in the whole country.

China built a large number of smelters, and there was no incentive economically for anybody else to do it," she said. "But now some smelters might have a different value proposition than they used to, given the global desire to reshore and add value in-country. Chile is discussing a smelter as well.

But unless governments subsidize businesses, the private sector is unlikely to invest in a multiyear project on the basis of a tariff that could be removed or changed tomorrow," she added.

Exploring technological developments in copper production

There are alternative routes to securing more domestic copper than building new facilities, however. Freeport is pursuing the use of new technology to enhance the recovery of materials from its existing leach operations. Around half of the company's leach stockpiles are located at Morenci, Quirk said.

"What we're trying to do is use technology to get more leach pounds, and this can be done efficiently, without requirements to go through a smelter," she noted. "We also have the potential to expand the Miami smelter, because if we move forward with the Bagdad project, that is concentrate, and we would need more smelting capacity than we have today," she added. The company is also looking at technology to leach concentrate in vessels, she noted.

Global impacts of trade tensions

Quirk said she didn't expect non-US companies to start building smelters in the US, but that there was the potential for additional recycling capacity.

She also expressed concern over the potential impacts of global trade tensions on the company's employees and operations outside the US. "The copper industry is close knit, and this impacts our people in countries around the world. We're concerned about the impact on nations where we have long-standing relations -- Indonesia, Peru, Chile, Europe -- and what the international reaction will be," she said.

The company operates the Cerro Verde copper mine in Peru and the El Abra copper mine in Chile, and owns Atlantic Copper in Spain.

It also operates one of the world's largest copper and gold mines at the Grasberg minerals district in Central Papua, Indonesia, as well as two copper smelters and a precious metals refinery.

In Hotter Commodities[4], special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector.

Read more coverage on our dedicated Hotter Commodities page[5] here.

References

1. ^ Freeport-McMoRan (fcx.com)
2. ^ copper production (www.fastmarkets.com)
3. ^ Additional reciprocal tariffs (www.fastmarkets.com)
4. ^ Hotter Commodities (www.fastmarkets.com)
5. ^ Hotter Commodities page (www.fastmarkets.com)