ETF Trends
ETF Trends

The copper exchange traded note dipped Tuesday to its lowest point in almost six years as traders dumped copper on a weaker outlook in China and a potential pullback in oil-services-related industrial activity due to cheaper oil.

The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC) fell 3.4% Tuesday and was hovering around its lowest since May 2009. Over the past year, JJC declined 20.0%.

Short positions in copper are at a multi-year high as traders hold a more pessimistic outlook over China’s growth and diminished demand for the industrial metal, reports Jenny Cosgrave for CNBC.

“Copper remains our favorite short in the (commodity) complex. The fact that both local and central government balance sheets in China are at risk from declining land sales and hence lower revenues will also constrain their ability to boost growth through infrastructure investments,” Michael Lewis, head of commodity research at Deutsche Bank, said in the CNBC article. “In our view, this means markets with a disproportionate exposure to China’s property sector, like copper, are vulnerable.”

Copper also declined, along with oil prices, after the Organization of the Petroleum Exporting Countries kept output unchanged.

“Because of the drop in oil, there is just a general avoidance of raw materials on the part of investors,” Bart Melek, head of commodities at TD Securities, said in a Wall Street Journal article. “This is probably an overreaction. It’s too early to say the world is falling apart.”

COMEX copper futures are now trading around $2.64 per pound, and prices on the London Metal Exchange dipped below $6,000 per ton Monday for the first time since October 2009.

Despite falling prices, which have pushed as much as a tenth of the world’s copper miners into the negative, the drop has not been severe enough to trigger supply cuts, Reuters reports. [ETF Chart of the Day: Copper Call]

Robert Edwards, managing consultant for mining costs at consultancy CRU, argues that miners may cut supply once copper prices fall to a more unsustainable $5,000 per ton, which would make a quarter of the world’s producers unprofitable.

Moreover, copper prices could see further pain ahead of the Chinese Lunar New Year in February, a week-long holiday that would idle many factories and manufacturers across Asia.

iPath Dow Jones-UBS Copper Subindex Total Return ETN

For more information on the copper market, visit our copper category.

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.