The exchange traded note that tracks copper, known by traders as the metal with a Ph.D. in economics, has been faltering despite an expanding global economy. Many are pointing to troubles in China as the main culprit in copper’s weakness.
The iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NYSEArca: JJC) has declined 12.8% year-to-date.
Copper prices are off to their worst start to a year since COMEX futures began trading in 1988, Bloomberg reports. In December, the correlation between copper prices and the S&P 500 was the lowest since 2008. [What the Gold/Copper Ratio is Saying]
The base metal, once considered a useful indicator of global economic growth because of its widespread industrial application, has been declining while the world economy is expected to expand the most in three years.
The metal’s status as a global bellwether may have been attributed to China’s robust demand over the past decade – China consumed five times as much as the second largest user, the U.S.
However, stockpiles in China have climbed for nine straight weeks, the longest advance since February 2012. China’s copper inventory is now up 75% since early January.
“The idea that copper is actually a barometer of global economic health is a bit misleading,” Neil Dutta, the head of U.S. economics at Renaissance Macro Research LLC, said in the article. “The U.S. recovery in auto and housing isn’t going to be able to offset the weakening demand of copper in China. That speaks more towards a mix of growth, not necessarily the health of the overall economy.”
Falling copper prices may be an indication that investors are growing nervous about China’s growth prospects. Economists predict the Chinese economy will expand an average 7.45% this year, the weakest pact since 1990, as Beijing enacts economic reforms to reign in rising credit, lower overcapacity, diminish industrial pollution and shift over to a consumer-based economy. The iShares China Large-Cap ETF (NYSEArca: FXI) declined 13.7% year-to-date.
The depressed copper prices are also weighing on Chile, the world’s largest copper producer. The iShares MSCI Chile Capped ETF (NYSEArca: ECH) has declined 10.6% year-to-date. [Copper Collapse Chills Chile ETF]
iPath Dow Jones-UBS Copper Total Return Sub-Index ETN
For more information on copper, visit our copper category.