The iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) is up 7.2% year-to-date, but investors should be careful if they are betting on more significant upside to come for JJC and copper futures.
Copper prices are benefiting as investors anticipate greater demand out of China and increased infrastructure projects under President Donald Trump. Some professional traders are reacting by increasing bullish bets on the red metal.
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.
“The rally of copper prices towards the end of 2016 was heavily influenced by concerns over a slowdown of mine supply growth at the same time as Chinese demand accelerated … inventories usually increase at the beginning of the year, when demand can be weak seasonally because winter subdues activity in some sectors in the Northern Hemisphere and factories close during the Lunar New Year holidays in China. … reported stocks remain within recent ranges, reinforcing our view that rising inventories do not reflect a sudden deterioration in underlying fundamentals,” according to a Bank of America/Merrill Lynch note posted by Dimitra DeFotis of Barron’s.
A near-term issue for copper is the ability of the Trump Administration to get its ambitious infrastructure efforts off the ground, something many market observers believe will not happen until next year. Additionally, if that effort does not approach the $1 trillion in expenditures promised by the president on the campaign trail, markets could be disappointed.
Trump’s audacious infrastructure plan has somewhat fallen out of the spotlight amid the administration’s other efforts in recent days, but that plan is widely seen as a catalyst for industrial metals, including copper.
“There is scope for stronger demand seasonally and a tightening of the physical market, especially in China, a key reason we maintain our mid-year price target of $6,600/ton ($3/pound). Supply disruptions have been meaningful … Treatment and refining charges have been under pressure … as some of the largest mines have faced outages,” according to the Bank of America/Merrill Lynch note seen in Barron’s.
For more information on Copper ETFs, visit our Copper category.