The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, is off 3.2% year-to-date.
Unfortunately, underscoring the weakness faced by the red metal, all of JJC’s 2016 has been accrued over the past week and fundamental factor do not bode in favor of more upside for copper.
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.
Related: Strengthening Dollar Plaguing Copper ETN
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.
“Commodity analysts at Goldman Sachs have detailed a new tactical opportunity for investors, explaining that a supply glut will mean copper will see some significant price pressures in the coming months,” according to CNBC.
The iShares MSCI Chile Capped ETF (NYSEArca: ECH) is one of the best-performing emerging markets single-country exchange traded funds. It is also defying weakness in the copper market, an important factor because Chile is the world’s largest producer of the red metal.
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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.
“In copper, we expect the main catalyst for the downside will be accelerating oversupply, but we are also conscious that we are entering a weak seasonal period for demand during which period inventories tend to build and prices often come under pressure,” according to a Goldman Sachs note posted by CNBC.
For more information on Copper ETFs, visit our Copper category.