This article was originally published on ETFTrends.com.
Copper-related exchange traded funds could strengthen this year as big banks turn bullish on the base metal in anticipation of tightening supply ahead.
Year-to-date, the United States Copper Index Fund (CPER) gained 5.4% and iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) rose 5.6%.
Morgan Stanley projected copper prices could increase 14% in 2019 due to a supply-driven deficit by the year end, the Financial Times reports.
“A year of weak grades at major operating mines more than offsets limited growth from green and brownfield projects, resulting in shrinking total mine production through 2019,” the bank said in its report “Copper: the stars are aligned”.
“Demand growth should slow versus 2018, but anything above 0 per cent is sufficient to tighten the market, jolting it from its finely balanced state into outright deficit,” Morgan Stanley analysts added.
Copper prices have been stuck range bound for the past six months on demand concerns in the wake of a slowing global economy and escalating U.S.-China trade war.
Several other banks, including Citi and Goldman Sachs, have also mirrored Morgan Stanley's projections, arguing that copper could break out of the $5,800 and $6,400 per tonne range. Goldman estimated copper prices could hit $7,000 while Citi believed copper could reach $6,700 in the next six months as President Donald Trump finalizes a trade deal with China and the global economy rebounds.
Copper prices were trading around $6,125 Wednesday and were up 4% since the start of the year.
"FCX's earnings sensitivity to copper is still the highest among its peers, and combined with its high trading liquidity, we believe it will emerge as the go-to large-cap stock for exposure to a copper price rally," Morgan Stanley's lead analyst Piyush Sood said in a note.
ETF investors can also gain exposure to the metals and mining space through miner-related ETFs, such as the SPDR Metals & Mining ETF (XME) , which is designed to track the broad metals and mining segment, and the the Global X Copper Miners ETF (NYSEARCA: COPX) , which takes a more focused approach to copper miners.
For more information on the copper market, visit our copper category.
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