China’s crackdown on metal financing is weighing on copper exchange traded funds, sending copper futures to a six-week low. However, some argue that the risks are exaggerated and the sell-off may be overdone.

The iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NYSEArca: JJC) is down 0.6% Thursday while the United States Copper Index ETF (NYSEArca: CPER) declined 1.2%. Over the past month, JJC fell 1.9% and CPER has dipped 0.2%.

China’s State Reserve Bureau, the agency that stockpiles strategic commodities, along with large banks, are reviewing the alleged fraud involving metals used to obtain loans, Bloomberg reports.

“The Qingdao probe has been a drag on copper,” Frank Lesh, a trader at FuturePath Trading LLC, said in the article. “Those financing deals are out of favor. The thought is that those commodities are entering the market place now” as finance deals using copper are unwound.

COMEX copper futures fell 0.8% Thursday, trading around $3.015 per pound. So far this month, copper prices have decreased 3.3% as observers anticipate diminished copper inventory financing, a source of Chinese demand.

“The ongoing investigation (at Qingdao port) is still the main theme which is causing the selling pressure for the metal,” Naeem Aslam, chief market analyst at Ava Trade, said in a Reuters article.

Copper analysts, though, believe this event will be a short-term blip. The investigation will unlikely “break” the copper market, according to the Bank of America. The bank calculates that the unwound positions would only come to less than a day of Chinese demand.

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