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Why Copper ETFs Are on a Tear

Sanghamitra Saha
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Copper prices are on a tear right now on renewed optimism about the health of the Chinese economy. China's economic growth probably eased in the third quarter but is on its way to surpass the government's annual forecasts, as per analysts. Plus, China’s central bank governor expects the economy to expand 7% in the second half of this year, gaining momentum from the first half and confronting common expectations for a slowdown. 

Among the latest data released, Chinese producer price inflation increased to 6.9% in September compared with the year-ago level, beating 6.3% growth in August and the 6.4% forecast by economists.

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, speculation of improvement in a key consumer pushed copper prices up in recent trading to the highest level since February 2014. iPath Dow Jones-UBS Copper ETN JJC added about 3.7% on Oct 16 (read: 3 Red Hot Base Metal ETFs).

In September, China imported 1.47 million tons of copper ore and concentrates, the highest level since March, when the country brought in 1.63 million tons, as per the source. The source went on to explain that Chilean copper producer Codelco announced outlays of $40 billion until 2026 in order to develop key structural projects and upgrade smelters to comply with the country’s stringent environmental regulations.

According to a state-run consulting company, China's 2017 national copper concentrate demand is expected to increase at double digit rates this year to 6.1 million tons. Deficit concerns are rising in copper investments.

In early August, research house Jefferies indicated that prices may remain erratic in the near term and rise to $2.75/lb in 2018 and $3/lb in 2019 from the current $2.87/lb. Jefferies even sees the possibility of $4/lb or above pricing in copper in the next five years. All these factors gave a boost to the copper trading (read: Top and Flop Sector ETFs of Q3).

ETFs to Play 

Investors should thus definitely monitor the following options, as they represent easy ways for the average investor to tap the copper market.

United States Copper Index CPER

The fund is an exchange-traded security that looks to track the price movements of the Summer Haven Copper Index Total Return. CPER issues units that may be purchased and sold on the NYSE Arca. The fund charges 80 bps in fees. The fund has a Zacks Rank #3 (Hold) with a High risk outlook. The product gained more than 3.5% on Oct 16.

iPath Bloomberg Copper SubTR ETN 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. The fund has a Zacks ETF Rank #3 with a High risk outlook.

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 27 stocks in its basket and charges 65 basis points a year in fees for the exposure. Canadian firms make up about 30% of assets, leaving about 13.6% for Australia and 9.3% for China. The fund gained about 2.5% on Oct 16 (see all the Materials ETFs here).         

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