Rising Copper Demand Could Prop Up Chile ETF

ETF Trends

A jump in Chinese copper imports is strengthening the outlook of exchange traded funds that track copper prices and Chile, the world’s largest copper producer,

The General Adminstration of Customs said that unwrought copper and copper product arrivals increased 53% to 536,000 metric tons last month year-over-year, Bloomberg reports.

“It’s very likely that the trade financing need boosted imports,” Lian Zheng, the head of the base metals research at Xinhu Futures Co., said in the article. “Copper is still a top pick among commodities to get funding, even as such trades have been under serious scrutiny by regulators.”

China, the largest consumer of copper, said exports surged 10.6% last month while imports jumped 10.3%. Those data points would appear to be a positive catalyst for copper, but market observers are skeptical, saying the extended Lunar New Year should have been a drag on activity in the world’s second-largest economy. [Some Investors Favoring Cyclical Metals]

“Additionally, some traders imported excessive volumes ahead of the Chinese Lunar New Year holiday,” Lian added, referring to the week long hiatus between Jan. 31 and Feb. 6.

Chile previously projected that global copper prices will average $3.15 per pound this year before easing to an average of $3.00 per pound in 2015 on increased production, with Chile expected to produce 6 million tons this year, compared to 5.77 million tons last year, Reuters reports.

COMEX copper futures currently hover around $3.31 per pound.

“The increased copper surplus (of approximately 416,000 metric tonnes) expected in 2015, 16 percent larger than this year, is due in large part to increased production at mining operations in Chile, Peru, Mexico and Zambia, among others,” Mining Minister Hernan de Solminihac said in the Reuters article.

The iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NSYEArca:JJC) was up 1.1% over the past week, but the exchange traded note is still down 5.2% year-to-date.

The iShares MSCI Chile Capped ETF (ECH) gained 4.7% over the past week, but the ETF is still down 10.8% year-to-date. While Chile may be the largest copper producer in the world, the materials sector only makes up 10.9% of ECH’s holdings. The ETF leans includes a heavy tilt toward non-cyclical utilities at 25.1% and consumer staples at 12.0% but also holds 17.8% in the riskier financials sector.

iShares MSCI Chile Capped ETF

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For more information on Chile, visit our Chile category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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