Southern Copper Slumps 2.6% – Valuation Woes or Copper’s Cooling Trend?

• SCCO closed at $97.42, down 2.56% on the day, hitting an intraday low of $95.92
• Morgan Stanley downgrades to Underweight, citing 'overdone valuation' and diminishing COMEX exposure risks
• Analysts now average a $94.63 price target, 1.8% below current levels
• Sector peer Freeport-McMoRan (FCX) also fell 3.69%, signaling broader copper market softness

Southern Copper’s sharp drop on July 15 reflects growing investor skepticism toward its premium multiples amid cooling copper demand and valuation concerns. The stock’s 2.56% decline erased $2 billion from its market cap, underscoring the pressure on mining equities as Wall Street digests macroeconomic risks and sector-specific challenges.

Valuation Overhang and Copper Exposure Concerns Drive the Sell-Off
The downgrade from Morgan Stanley to Underweight, coupled with UBS’s Neutral call, crystallized investor doubts about Southern Copper’s premium valuation. Analysts highlighted the stock trades at 23.7x 2025 earnings and 12.4x 2026 EBITDA—both above historical averages—while its lack of U.S. copper exposure reduces pricing leverage as COMEX-linked rivals benefit from tariffs. Despite Q1 EPS beating estimates ($1.19 vs $1.10), the market prioritized near-term valuation risks over production growth plans, triggering profit-taking.

Copper Sector Stumbles as Valuation Concerns Spread
Southern Copper’s decline mirrors broader weakness in copper equities. Sector leader Freeport-McMoRan (FCX) fell 3.69%, while U.S. copper scrap export debates and slowing nickel demand further cloud the metal complex. The non-ferrous metals sector’s 1.2% average decline highlights that Southern’s struggles aren’t isolated—valuation resets and macro fears are industry-wide.

Bearish Bias Dominates – Top Put and Call Contracts to Watch
Technical Indicators:
• RSI: 59.14 (Neutral)
• MACD: -0.35 (Bearish Histogram)
• Bollinger Bands: Below Middle Band ($99.88)
• 200-Day MA: $98.07 (Current price trades slightly below)

Traders should focus on $95.92-$96.07 support and $99.99 resistance. Short-term bias leans bearish as valuation concerns dominate. For leveraged exposure, consider FCX shorts or inverse ETFs like SOXX (though no direct ETF data provided).

Top Option Picks:
1. SCCO20250815P95 (Put, $95 Strike):
- Implied Volatility: 41.37%
- Delta: -0.38 (Bearish)
- Gamma: 0.032 (High price sensitivity)
- Theta: -0.046 (Decays ~$46/day)
- Turnover: 5,765 contracts (High liquidity)
- Why? Near-the-money put with strong theta decay and $95 strike aligning with support levels. A $95 close would yield 62% gains.

2. SCCO20250815C90 (Call, $90 Strike):
- Implied Volatility: 67.39%
- Delta: 0.697 (Moderate Bullish)
- Gamma: 0.018 (Moderate sensitivity)
- Theta: -0.128 (Decays ~$128/day)
- Turnover: 0 contracts (Low liquidity warning)
- Why? High volatility premium offers downside protection; potential 10% gain if the stock rebounds to $94.63.

Trade Hook: Aggressive bears should target the $95 put into $96 support; cautious traders may use the $90 call as a volatility hedge.

Backtest Southern Copper Stock Performance
The backtest of SCCO's performance after an intraday plunge of -3% shows mixed results. While the 3-day win rate is 50.08%, the 10-day win rate is 48.10%, and the 30-day win rate is 49.59%, indicating a higher probability of positive returns in the short term. However, the maximum return during the backtest period was only 0.30% over 30 days, suggesting that while there is a good chance of recovery, the potential upside is limited.

Southern Copper Faces Crossroads – Watch for Copper Price Signals
Southern Copper’s near-term trajectory hinges on copper price dynamics and valuation digestion. While production targets (1 million tons by 2028) remain intact, near-term risks include U.S. tariff fallout and stretched multiples. Investors should monitor Freeport-McMoRan’s ($FCX) performance—a 3.69% drop today—and COMEX copper futures. A sustained breach below $96 could trigger further downgrades. Action Alert: Focus on $95-$96 support; traders bullish on long-term copper demand may wait for a $90-$92 consolidation before considering dips.