Copper, along with related exchange traded funds, are on a multi-year decline and the ongoing bear market may get worse before it gets better.
Since the February 2011 high, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note, has declined 54.3%.
Year-to-date, JJC decreased 17.5%, the iPath Pure Beta Copper ETN (NYSEArca: CUPM) fell 11.1% and United States Copper Index ETF (NYSEArca: CPER) dropped 15.3%.
Additionally, the producers equities-backed First Trust ISE Global Copper Index Fund (NasdaqGM: CU) was down 20.7% and Global X Copper Miners ETF (NYSEArca: COPX) was 20.0% lower so far this year.
Goldman Sachs argues that the base metal is headed for a seven-year-long bear market cycle, reports Aza Wee Sile for CNBC.
“It is, in our view, highly likely that the four-year trend decline in copper prices is set to continue through at least 2018,” Goldman Sachs said in a note.
Consequently, the bank has cut its three-, six- and 12-month copper forecasts to $5,200, $4,800 and $4,800 per ton, respectively from $5,500, $5,550 and $5,200. In contrast, the industrial metal rallied to a high of over $10,000 metric ton in 2011 on huge demand from China’s housing boom.
However, Goldman warned that copper, which is exposed to macroeconomic headwinds, is currently exposed to diverging monetary policies, deflation and deleveraging in China, the largest consumer of copper.
Moreover, Goldman believes that as China shifts from government spending and investment-fueled growth to private-sector consumption, the country’s copper demand will continue to fall.
Earlier in July, Deutsche Bank also cut its copper projections due to weak Chinese demand. DB also expects rising supply in 2016 on new mine commissions, which could cause copper to “remain vulnerable to periodic bouts of ‘shorting.'”
“The anti-corruption checks that the government implemented for large projects has delayed orders for cable from state-owned power firms,” Grant Sporre, head of metals research at Deutsche Bank, said in the report.
For more information on the copper market, visit our copper category.
Max Chen contributed to this article.