ETF Trends
ETF Trends

The copper exchange traded note (ETN) has had a nice ride in the last two weeks, but how long can it keep this up? On the one hand, we’ve had assurances that the economic recovery is on track; on the other are those dismal new home sales numbers.

Speculation that demand will increase for copper used for pipes and wires and dip in the dollar boosted copper prices for the week ending on Feb. 19, reports Millie Munshi for BusinessWeek. Copper futures for May delivery had their largest weekly gain since July 17.

Lannie Cohen, the president of Capitol Commodity Services Inc., says that copper “demand is looking better. We’ve gotten some good economic news this week and that’s given us a steadier tone for the market.” [Why Metals Are Showing Strength.]

But now what? We’ve got some good and bad in here:

  • Chinese copper smelting capacity will expand by almost 2 Mt/y within the next two years, bringing China’s total copper smelting capacity above 7 Mt/y, but the expansion will still fall short of real consumption in the short- to medium-term, according to Commodity Online.
  • China’s real consumption of copper could increase by 9% year-over-year in 2010 to more than 7.4 Mt. Still, China has large bonded warehouse inventories to draw upon, and anticipated 2010 import volumes will be lower by about two-thirds of 2009 volumes, or around 2 Mt. [Why Mind the Copper Rally?]
  • New home sales tanked 11.2% in January. Copper is heavily used in wiring and pipes. If new homes aren’t being built at a pace that anyone likes, copper may be dependent on other sources of demand for the time being.
  • Copper prices were ahead of fundamentals in 2009 and early 2010 after investors bet on sustained Chinese demand growth and faster growth in OECD economies. The debt risk in the European Union may push investors to the relative safety of the U.S. dollar, which won’t help copper prices.

For more information on copper, visit our copper category.

  • iPath Dow Jones UBS Copper Tr Sub-Index ETN (NYSEArca: JJC)

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.