Copper prices have surged to 28-month highs while the base metal’s exchange traded funds (ETFs) follow suit. What’s driving the metal higher is more than you might think.
- A Chilean strike. Chile is the world’s largest copper producer, so any interruption have the potential to be keenly felt by the markets. Copper rose to a 28-month high in London even before workers at Collahuasi in Chile, the world’s fourth-largest copper mine, prepared for a “long” strike. Claudia Carpenter for BusinessWeek reports that this has the potential to disturb supplies.
- Emerging market urbanization. China’s next phase of urbanization is fueling a huge demand for electricity which should, in turn, increase demand for copper. Don Miller for Money Morning reports that China is on track to triple its consumption of copper to 20 million tons by 2020. At that point, the country will account for 49% of world copper sales. [More Copper Investing Opportunities With ETFs.]
- Bullish forecasts. Predictions are out that say the metal could rise by 50% to $12,000 a metric ton in the next six to 12 months. That’s got investors around the world looking for ways to get exposure.
- The Federal Reserve’s quantitative easing plan is also fueling demand for the metal. It’s believed by investors that the program could fuel an increase in construction, which would lead to more use of copper in pipes and wiring, says the International Business Times.
There are just two copper ETFs trading now – First Trust ISE Global Copper (NASDAQ: CU) and Global X Copper Miners ETF (NYSEArca: COPX). Both funds hold mining stocks from around the world. A physically-backed copper ETF should be available at some point; there are two funds in registration right now.
There’s also an exchange traded note (ETN), iPath DJ-UBS Copper (NYSEArca: JJC), which is designed to track the performance of a basket of copper futures contracts. As with all ETNs, any tracking error is borne by the issuer.
Tisha Guerrero 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.