The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, is up nearly 7% over the past month, but not all traders are convinced the red metal’s recent rally is durable.
While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
The U.S. dollar is expected to appreciate against foreign currencies as the Federal Reserve embarks on monetary tightening while international central banks are largely enacting looser policies to stimulate growth. As the U.S. dollar strengthens, the USD-denominated commodities will likely weaken on lower overseas demand. [Commodity ETFs Take Beating from Fed]
Moreover, China, the world’s second largest economy, has been grappling with weaker growth, raising concerns over its ability to maintain previous levels of demand for raw materials, like copper.
“Investors increased their net-short holdings in copper to 7,672 U.S. futures and options in the week ended Feb. 16, according to Commodity Futures Trading Commission data released three days later. That compares with 7,134 a week earlier. Long wagers slumped 9.1 percent to 33,217 contracts, the biggest drop since Nov. 3. While prices traded in New York rose 2.4 percent to $2.0805 a pound last week on the Comex, the metal is still down about 20 percent over the past 12 months,” reports Joe Deaux for Bloomberg.
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]
Last year, 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.’”
“Weak demand in China will keep copper trapped in a bear market through 2018, Goldman analysts wrote in a Feb. 8 report. The bank forecasts that a global surplus of the metal will grow to 665,000 tons this year, from 339,000 tons last year,” according to Bloomberg.
iPath Dow Jones-UBS Copper Subindex Total Return ETN
