China is taking steps to cool what many are starting to believe is runaway growth in its economy. The fact is, though, China is one of the major consumers in the world. Any slowing in their consumption could ding several exchange traded funds (ETFs). Here are some areas to watch closely.
Copper. China is the world’s largest copper consumer, could take further steps to cool price gains, which would diminish demand for commodities, reports Glenys Sims for Bloomberg. China is in the midst of a building boom, and copper is a major part of that, since it’s used in pipes and wiring. The copper markets could feel shockwaves if building in China cools off.
- First Trust ISE Global Copper Index (NYSEArca: CU)
Food. China is taking steps to cool rising food prices and cotton. It’s estimated that food accounts for one-third of a family’s spending, so the government is looking for a little stability in the prices of grain, oil, sugar and cotton, reports The New York Times. Among the ETFs that could feel the pinch include:
- iPath DJ-UBS Cotton TR Sub-Idx ETN (NYSEArca: BAL): Tracks a basket of cotton futures
- PowerShares DB Agriculture (NYSEArca: DBA): Holds futures on sugar, wheat, soybeans, corn and more
- Teucrium Corn Fund ETV (NYSEArca: CORN): Holds futures on corn
Aluminum, Zinc and Lead. China will sell 117,000 tons of aluminum from reserves, which marks the second time the State Reserve Bureau is selling stockpiles. As demand for auto production and telecommunications slows down, lead consumption in China may only grow by 11% for 2010, compared to 16.5% last year, according to Bloomberg. Following zinc, lead is the second-worst performing metal on the London Metal Exchange so far this year as investors become more concerned about Chinese measures to dampen inflation and high unemployment in the U.S that could impede the global recovery.
- iPath DJ-UBS Lead TR Sub-Idx ETN (NYSEArca: LD): Tracks a basket of lead futures.
- iPath DJ-UBS Aluminum (NYSEArca: JJU): Tracks a basket of aluminum futures.
- PowerShares DB Base Metals (NYSEArca: DBB): Holds copper, aluminum and zinc futures.
Steel. Construction accounts for 50% of China’s steel demand, and it’s the largest producer of the metal, contributing 46% of the world’s total output in 2009, reports the Economic Times. Steel mills are under pressure to scale back operations next year. That could spell pain for steel ETFs.
- Market Vectors Steel ETF (NYSEArca: SLX): Tracks a basket of steel industry-related stocks.
For more information on metals, visit our metals & mining 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.