Industrial metals and the relevant exchange traded products have been punished this year and it looks like it will take a while before copper rebounds. The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note, is down nearly 30% over the past six months and recently touched an all-time low.
The U.S. dollar has been strengthening on greater speculation that the Federal Reserve will begin tightening its monetary policy in December after the surprisingly strong October jobs report. Most raw materials are priced in dollars and historically a strong USD has pressured commodities.
Some commodities, like copper, are lower on the economic weakness in China, a major raw materials consumer, and other emerging markets.
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 copper market is facing two or three years more of pain, though the good news for the metal, which hit a six-year low this week, is that it will recover faster than other commodities, according to Rio Tinto Group,” reports David Stringer for Bloomberg.
Copper’s slide has also plagued the iShares MSCI Chile Capped ETF (NYSEArca: ECH). ECH, the lone ETF dedicated to tracking equities in the world’s largest copper-producing country. Although Chile is viewed by some market observers as the most advanced and open South American economy and it is undeniably home to Latin America’s highest sovereign credit rating (AA-), there is also no denying the country’s dependence on copper exports as a driver of government revenue. [A Chilly View on the Chile ETF]
“Copper roughly represents 40% of the country’s export revenue and minerals constitute the majority of the revenue in total,” according to Emerging Equity.
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]
“Goldman Sachs Group Inc. says the bear cycle in copper has years to run, predicting rising global surpluses through 2019 and seeing prices at $4,500 a metric ton by the end of 2016, with the risk skewed to the downside. The metal touched a six-year low of $4,490 a ton on Monday,” adds Bloomberg.
iPath Dow Jones-UBS Copper Subindex Total Return ETN
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.