Morgan Stanley Downgrades Freeport-McMoRan, Teck Resources Amid Copper Price Concerns

Morgan Stanley has downgraded Freeport-McMoRan Inc. (FCX.US) and Teck Resources Ltd. (TECK.US) from "Overweight" to "Equal-weight," setting target prices of $54 and $44 respectively. The firm cited that the stocks under its coverage have outperformed LME copper prices by 28 percentage points since April 8, making the risk/reward profile less attractive. This is particularly true given the implementation of Section 232 import tariffs in the U.S. and the subsequent reduction in demand from U.S. manufacturers who had pre-stocked inventory.

Carlos De Alba, the lead analyst at Morgan Stanley, still sees potential for Freeport-McMoRan's stock to rise due to its high COMEX copper exposure and strong gold prospects. However, the current risk/reward ratio is not as favorable, and there are few catalysts for positive movement in the near term.

Teck Resources' stock valuation has already increased and is now on par with pure copper peers. De Alba believes this adjustment is reasonable given the company's growth potential and increasing free cash flow. However, further valuation increases will depend on the success of the Quebrada Blanca expansion project and sustained strong performance over multiple quarters.

Morgan Stanley also downgraded Southern Copper Corp. (SCCO.US) from "Equal-weight" to "Underweight" with a target price of $99. The firm noted that the stock's valuation appears high relative to its historical average and commands a premium over the industry average. Analysts expect the company's COMEX futures exposure to decrease, which could lower its effective pricing compared to peers, as it does not mine copper in the U.S.

Additionally, Morgan Stanley downgraded Nexa Resources (NEXA.US) from "Equal-weight" to "Underweight" with a target price of $5. The firm cited a pessimistic outlook on zinc prices, as well as production challenges at the Aripuan project and operational issues at other mines, which could hinder the company's ability to meet production targets.