Freeport-McMoRan Inc is a multinational American company dealing in the mining industry that focuses on product extraction of gold, copper and molybdenum. The company was though founded in 1912; the company was created in 1981 through the merger of Freeport Minerals and McMoRan Oil and Gas Company. The companies headquarter is located in Arizona, United States.
As of 2019, the company generated a figure revenue of 14.40 billion US dollars and has an active employment figure globally of around 13,000 (Fcx, 2019). The assessment by Porter’s five forces would be of help in keeping with the global perception of Freeport and McMoRan Inc, as a tool to better grasp the company’s positioning.
Competitive Rivalry in The Market
The competitive rivalry in the mining industry is considered to be high, depending on the type of products they mine for such as gold or copper because the demand and usage of such minerals are required for different product and items worldwide. As a result of this demand, several firms have captured the market as miners to fulfil the demand of consumers, resulting in strong competition among the firms. The major competitors of the company are Codelco, Glencore, BHP Billiton, Southern Copper and First Quantum.
Freeport-McMoran is trying to lead the market in terms of copper mining worldwide by showing a production output of 1.18 million metric tons as of 2020, while others at the same time are standing at the production output of copper of 1.73, 1.26, 1.11, 1 and 0.78 million metric tons (Statista, 2021). Therefore, the presence of such big firms making the environment of the industry more competitive.
Threat of Substitutes
In the mining business, the risk of alternatives is considerably low because the products generated in the industry have relatively little replacement available. Because the majority of the metals and minerals consumed are majorly gold and copper. That also means that the greatest profit that companies in the business can make is not limited.
However, there are only a few available substitutes that are high-quality but cost much more. In comparison, companies in the mining industry to which they operate and sell with appropriate quality at low prices than replacements. This means that purchasers are less susceptible to replacement. (Choi and Song, 2017). Therefore, the risk of having alternative products is low in the mining business.
The Threat of New Entrants
The threat of new entrants in the mining industry is considered to be low as scale efficiencies in the sector are fairly hard to achieve and for people who produce huge capabilities; this makes it easier to have a cost-benefit. Therefore, it is tough for newcomers to establish companies as substantial costs are to be invested within the industry to meet the capital requirements.
The product differentiation in the industry is high, where companies in the business are instead selling differentiated product. Government laws in the industry demand tight licensing and legal procedures before a company can begin to sell (Spiegel, 2015). Therefore, the threat of new entrants in the mining industry is weak.
Bargaining Power of Buyers
The Bargaining power of buyers in the case of the mining industry is low because the number of mining supplier industry is far more than that of the companies that produce the items. This means that a few companies can choose from the buyers and so don’t have much price control. Product differentiation is great within the sector so that purchasers cannot identify alternative companies that produce a specific product.
The industry’s purchasers’ income is low which means there is an incentive to buy at cheap prices, which makes buyers more sensitive to prices (Rama, 2017). With such a system in mind, because of its nature, the negotiating power of purchasers is relatively little.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the mining industry is weak. In comparison with the purchasers, the number of providers operates in the industry. So, the price control of suppliers is reduced. The product offered by these providers is fairly standardized, less distinctive and has low changeover costs. For its suppliers, the mining sector is a key client. This means that the profitability of the industry is tightly linked to those of the providers. Consequently, these vendors must offer fair prices (Souza, 2014).
The industrial economy, however, has reliable trustworthy control over the functioning of such undertakings. The negotiating strength of suppliers is so minimal in the context of the mining industry.
References:
Fcx, 2019. Freeport-McMoRan Inc. – Investors – Financial Information – Annual Reports & Proxy. [online] Investors.fcx.com. Available at: https://investors.fcx.com/investors/financial-information/annual-reports-and-proxy/default.aspx.
Statista, 2021. Leading copper producers worldwide by production output 2020 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/281023/leading-copper-producers-worldwide-by-output/.
Choi, Y. and Song, J., 2017. Review of photovoltaic and wind power systems utilized in the mining industry. Renewable and Sustainable Energy Reviews, 75, pp.1386-1391.
Spiegel, S.J., 2015. Shifting formalization policies and recentralizing power: The case of Zimbabwe’s artisanal gold mining sector. Society & Natural Resources, 28(5), pp.543-558.
Rämä, T., 2017. Value-based buying in the mining industry-an exploratory study.
Souza, G.C., 2014. Supply chain analytics. Business Horizons, 57(5), pp.595-605.