Copper ETFs to Lose as Metal Tanks to 5-Month Low
The coronavirus eruption has led to increased speculations of slowing economic growth in the world’s second-largest economy. In fact, analysts expect the outbreak to slow China’s economic growth to 5% or below.
It is even expected to hurt China’s ability to meet its commitments as pledged under the phase-one trade deal with the United States. In this regard, head of commodity strategy at Saxo Bank A/S, Ole Hansen, said, “there’s no way China can live up to the agreement of the phase-one deal. So growth is going to be delayed” (read: 5 ETFs to Protect Your Portfolio From Coronavirus Threat).
Coronavirus has dragged China’s manufacturing and construction activities to a seasonally low level. Demand for commodities has also taken a hit. China is a key market for commodities like copper, aluminum and zinc. In fact, it consumes about 50% of the world’s copper. Accordingly, prices of copper recently fell to the lowest level since early September 2019. In fact, the metal has seen the longest stretch of decline (13 sessions) since 1988. The increased sell-off of copper is reflective of investors’ fears of slowing global economic growth and reduced demand for the metal that is used in manufacturing a wide range of products, varying from electronic items to automobiles.
The total number of confirmed cases in China now totals 20,438, with the death toll rising to 425. Health experts are comparing the outbreak to the severe acute respiratory syndrome or SARS epidemic that wreaked havoc during 2002-2003, for 38 trading days. Coronavirus has now surpassed the total cases registered during the SARS epidemic. It should also be noted that China’s consumption of copper since the SARS epidemic has increased 30%, per analyst at Capital Economics. Moreover, it is being estimated by the same research firm that the coronavirus effect will erode demand for 500,000 tons of copper globally in comparison to 125,000-ton when SARS broke out (read: Best & Worst ETFs of Coronavirus-Affected January).
Copper ETFs in Focus
Given the strong forecasts, investors can take a look at the following copper ETFs:
iPath Series B Bloomberg Copper Subindex Total Return ETN JJC — down 10% in the past month
The ETN provides exposure to the Bloomberg Copper Subindex Total Return. The index reflects the returns that are potentially available through an unleveraged investment in the futures contracts on copper. The index currently consists of one futures contract on the commodity of copper (currently the Copper High Grade futures contract traded on the COMEX), which is included in the Bloomberg Commodity Index Total Return. The fund has an AUM of $13 million and charges a fee of 45 basis points (read: Wining & Losing ETF Areas on Coronavirus Outbreak).
United States Copper Index Fund CPER — down 9.8%
The fund seeks to track the performance of the SummerHaven Copper Index Total Return, plus interest income from CPER’s holdings, less fund expenses. CPER is designed to be a convenient, cost-effective way for investors to access the returns of a portfolio of copper futures contracts and is listed on the NYSE Arca. The fund has an AUM of $6.3 million and charges a fee of 80 basis points (read: Do Copper ETFs Make the Right Bet for 2020?).
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iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC): ETF Research Reports
United States Copper ETF (CPER): ETF Research Reports
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