What happened

Shares of Freeport McMoRan (FCX 0.80%) were holding up pretty well in August -- until this week, when they crashed. Although the copper stock gained some ground on Friday, it was still down about 11.6% for the week as of 2:20 p.m. ET, according to data provided by S&P Global Market Intelligence.

There's a valid reason why Freeport-McMoRan shares came under selling pressure.

So what

Copper prices hit one-month lows this week, and have now fallen for five consecutive months. In fact, prices of most base metals -- and with that, most metals and mining stocks -- took a hard hit over the past several days as fears of a slump in demand loom large, thanks to China.

China is the world's largest consumer of copper, but the economy appears to be in trouble. The country is battling a severe drought that has hit the power industry and operations in key industrial regions. Elsewhere, a surge in coronavirus cases and lockdowns has forced factories to shut down.

These factors have stymied industrial and manufacturing activity in the nation at a time when it's already facing a deep property crisis. China's factory activity, as measured by the purchasing managers' index, came in weak for the month of August, indicating a sluggish economy.

Since copper has wide industrial uses, demand for the metal is directly correlated to the health of the economy. A slowdown in China, coupled with an energy crisis in Europe and fears of a recession in the U.S., spooked investors in copper and sent prices of the metal crashing. As copper falls, so does Freeport-McMoRan stock.

Freeport-McMoRan also sells gold, and the price of the yellow metal dropped further this week, likely stemming from the Federal Reserve's tight monetary policy to tame inflation. Since gold is typically seen as a hedge against inflation, the Fed's efforts to reduce it sent gold prices lower.

Now what

Freeport-McMoRan's numbers already showed some signs of weakness last quarter. Its revenue declined roughly 6% year over year on lower average realized prices for copper. Its gross margin and net income decreased as well. With copper prices falling further now, investors fear the company's numbers going forward could be worse.

In its second-quarter earnings release, Freeport-McMoRan projected "extraordinarily favorable" fundamentals for the copper markets in the medium-to-long term, driven by surging demand for copper. Yet the company hinted at near-term uncertainty and said it'll closely monitor market conditions and adjust its "operating plans" as required.

It is this near-term uncertainty that led investors to dump Freeport-McMoRan stock this week.