While some commodities are soaring this year, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, is a laggard showing relative to other commodities exchange traded products.
In what could prove to be a cautionary tale, JJC’s laggard status could morph into an all out decline as copper prices approach a critical technical juncture. While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
Many industrial metals and miners rallied on the belief that China would support growth through stimulus measures, augmenting demand for metals while enticing investors to jump back in. Moreover, the depreciating U.S. dollar made USD-denominated resources cheaper for foreign buyers. The ongoing global low-yield environment also pushed investors toward more attractive assets, like commodities.
However, some market observers believe demand from China simply is not strong enough to support near-term upside for copper prices.[related_stories]
“We like the idea of the revenge of the low-cost player, meaning Peru. Weakness in demand in China — it’s not in the sweet spot. Put it all together, this market’s already in a surplus. Prices at $5,000 a ton — target $4,000,” said Jeff Currie, head of commodities research at Goldman Sachs, in an interview with CNBC.
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.
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However, ECH has been a solid performer among single-country emerging markets ETFs this year even though copper prices are soft.
“When it comes to the gold trade, Currie believes it is a great hedge against what’s happening in the world right now. Investors have been piling into the precious metal as a safe haven,” according to CNBC.
iPath Dow Jones-UBS Copper Subindex Total Return ETN