Copper exchange traded funds face significant hurdlers as global economies sputter. While Eurozone problems have distracted traders, China’s demand may ultimately keep the copper market depressed.
U.S. Copper Fund (NYSEArca: CPER), iPath Pure Beta Copper ETN (NYSEArca: CUPM) and iPath Dow Jones UBS-Copper Total Return ETN (NYSEArca: JJC) have all dropped over 15% in the past three months. The three funds track copper futures. [Copper ETFs: Prices Break Three-Year Support Line]
Copper is widely used as basic construction and manufacturing material, and demand from the two sectors will diminish during times of economic distress.
With recent Eurozone rumblings, analysts remain cautious ahead of the general elections in Greece and policy meeting of the U.S. Federal Reserve next week, according to a Wall Street Journal report.
“In the run up to the Greek election, the markets are likely to become increasingly nervous, and it seems unlikely investors will be looking to increase their risk appetite,” William Adams, head of research at FastMarkets.com, said in the WSJ article.
“Copper prices are stuck in a narrow range, reflecting caution and directionless trading. Investors are encouraged by equities’ rise, but are wary over the euro zone problems, which have so many implications for the world economy,” Great Wall Futures analyst Li Rong said in a Reuters article.
Nevertheless, accounting for over 40% of the market, China, the world’s largest consumer of copper, will likely decide the fate of the copper market. Germany comes in as the fifth largest copper consumer, according to Business Insider. Many analyst have downplayed the impact of the Eurozone on the copper market, looking at the emerging markets instead.
However, demand out of China may be diminishing as the country’s construction projects are mostly completed.
“China has invested a tremendous amount of capital in infrastructure in the past 10 to 15 years,” Linghui Tang, associate professor at the College of New Jersey’s School of Business, said in the Business Insider article. “As stated in its 13th five-year plan (2011-2016), the main focus now is to increase the quality of life. The main use of copper is in electricity grids. This part of infrastructure has been completely updated in China and its future demand is likely to be weak.”
iPath Dow Jones UBS-Copper Total Return ETN
For more information on copper, visit our copper 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.