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]