Just over 20 exchange traded products hit new 52-week lows. Unfortunately for commodities, plenty of those offending ETFs were commodities funds, including the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note.
JJC has shed 24% of its value year-to-date as slack demand for the red metal from China has prompted an array of global banks to pare their outlooks on copper. 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.
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.
There are hopes for rebounds for Chilean stocks and ECH. The country is a seen as a winner in a low oil price environment and stocks there are inexpensive relative to historical averages. [An ETF Idea for Low Oil Prices]
Still, that doesn’t erase the fact that ECH is off 15% year-to-date and that the outlook for copper is getting worse, not better.
“Chinese copper demand has been lackluster this year with unwrought copper imports down 5.5 percent year over year in September. It is possible that the effects of continued PBoC easing on copper demand won’t be seen until early 2016,” said the Wells Fargo Investment Institute in a note posted by Barron’s.
iPath Dow Jones-UBS Copper Subindex Total Return ETN
