Copper Rally has Plenty of Doubters

Industrial metals like copper, nickel, iron and steel have all rebounded in recent months as traders bet on improving global economic conditions would bolster demand for the base metals after prices hit multi-year lows.

Just look at the iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC). The benchmark copper exchange traded product has surged 20% this month, but that rally is not without its detractors. In fact, many commodities market observers feel that the red metal’s recent run higher is not sustainable.

Additionally, 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. The dollar has recently been soaring, which is unlikely to go unnoticed by the commodities market.

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.

“However,  according to a new survey of 22 investment banks and other commodity research institutions by FocusEconomics analysts and investors continue to call into question the sustainability of the rally,” reports Frik Els for

Another beneficiary of rising copper prices is 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.