After falling for five consecutive days, copper exchange traded funds (ETFs) are back. But is the rally here to stay?
The principles of supply and demand suggest that it may well be.
First Trust ISE Global Copper (NASDAQ: CU) and Global X Copper Miners (NYSEArca: COPX) are both up more than 2.5% today after losing nearly 6% over the last five trading days.
Forecasts are that the copper market will have a copper shortfall this year and next. Where the prognosticators disagree is on how large the deficit will be. Andrea Hotter for The Wall Street Journal reports that the smallest deficit is estimated at 90,000 metric tons in 2011, while the largest estimate is a deficit of 825,000 tons. Quite a range, no? Only one renegade analyst said the market was in a surplus. [Brazil ETFs In 2011: More In Store for 2011.]
Whether the deficit shrinks or grows next year is also a matter of debate. [5 ETFs to Play Surging Copper Demand.]
As physically-backed copper ETFs make their way into the markets – one is already trading in London – the belief is that demand will increase and create even more of a shortfall. Whatever happens with the ETFs, copper’s widely seen as being the tightest of the other base metals.
Analysts say that the rally in copper prices to new highs above $9,700/ton is being driven by the market’s underlying fundamentals. Concerns are building that a correction is likely at some point.
If a correction does rear its head, a simple strategy such as trend following may help limit your downside risk.
Aside from the miner funds above, there are two other ways to get copper exposure: iPath Dow Jones-UBS Copper ETN (NYSEArca: JJC) is an exchange traded note (ETN) that tracks a basket of copper futures; PowerShares DB Base Metals (NYSEArca: DBB) owns futures on copper, aluminum and zinc.
Tisha Guerrero contributed to this article.