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Tough Times Ahead for Copper ETFs?

Sanghamitra Saha

Copper prices had a decent run in the last one year, but are likely to slow down ahead, at least in the near term, on weaker Chinese factory activity data. The Caixin Manufacturing PMI in China dropped to 50.3 in April of 2017 from 51.2 in March and fell shy of the market consensus of 51.2 (read: Top ETF Stories of April 2017).

The reading came in at a seven-month low. Manufacturing output, new orders and new export orders grew at slower clip due to subdued business confidence and the steepest drop in employment since January.

China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, accounting for roughly 40% of global copper demand. As a result, fears of a slowdown in a key consumer pushed copper prices down in recent trading.iPath Bloomberg Copper SubTR ETN JJC lost over 1% on May 2.

Not only China, there was a slide in manufacturing activity in the U.S. too. The U.S. manufacturing sector slowed in April from last month. As per trading economics, Supply Management’s Manufacturing PMI in the U.S. dropped to 54.8 in April 2017 from 57.2 in March and fell shy of market expectations of 56.5. This marked the lowest reading since December 2016, hurt by slower growth in new orders and employment (read: GDP, Manufacturing Data Soften: ETFs to Play the Dip).

Plus, President Trump’s pledges to boost infrastructure spending doesn’t look as probable an agenda as it seemed five months ago. His inability to implement the healthcare bill due to lack of support sparked concerns over the other promised reforms. Since copper was one of the beneficiaries of the potential Trump-induced uptick in the U.S. industrial sector, the metal may now face trouble (read: Trump's First 100 Days: 5 Must See ETF Charts).

On the other hand, supplies are on the higher side. Chile-based miner Antofagasta recently reported that its copper output grew 9.4% in Q1. Against this sluggish backdrop, it shouldn’t be too surprising to think that copper ETF investing options will face difficulties in the coming days (see all industrial metal ETFs here).

Investors should definitely monitor these options, as they represent easy ways for the average investor to tap the copper market, and could continue to see volatility in the months ahead if the Chinese manufacturing sector continues to struggle.

JJC in Focus

The ETN tracks the Bloomberg Copper Subindex Total Return, which seeks to deliver returns through an unleveraged investment in the futures contracts on copper. The product charges investors 75 bps a year in fees. It trades at 70,000 shares a day on average.

Global X Copper Miners ETF COPX

This ETF represents an equity option for copper investors, tracking the Solactive Global Copper Miners Index. This fund holds 22 stocks in its basket and charges 65 basis points a year in fees for the exposure. American firms make up just 5% of assets, leaving a third for Canada, and 9% each for India and Australia. COPX tumbled about 1% on May 2, in line with its underlying metal (see all the Materials ETFs here).

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IPATH-BB COPR (JJC): ETF Research Reports
 
GLBL-X COPPER (COPX): ETF Research Reports
 
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