As an economically sensitive industrial metal, copper has endured its share of punishment this year, plaguing the iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) and other copper-related exchange traded products in the process.
Still, JJC is up 8% over the past month and is higher by 26% off its March lows. There could be more upside on the way for copper prices.
“A declining rate of copper deposit discovery poses a long-term threat to copper supply for an industry where it typically takes more than 15 years to steer discoveries to production, according to S&P Global Market Intelligence analyst Kevin Murphy.”
Crimped supply could support prices for awhile. Some analysts are growing concerned that global troubles could drag down the industrial metal as well. Along with the trade concerns, copper prices were weakening on softening global economic data. The base metal is a significant component in many industries, including construction, and is widely seen as a barometer for global economic health.
With an economic slowdown in China all but inevitable as a direct result of the novel coronavirus outbreak, copper markets and related ETFs could continue to weaken on the diminished industrial demand from the largest consumer in the world.
New sources for copper are important at a time when there’s expected to be a supply glut of the red metal even though production was hampered by the coronavirus earlier this year.
“The fallout of the coronavirus outbreak has forced global miners to cut their 2020 capital expenditure by about 19% and copper production outlook by 8%,” according to data compiled by Reuters. “Demand for metals has been hit as the coronavirus spread from China to other parts of the world and forced several nations to shut down much of their economies to contain the outbreak.”
Near-term supplies are enough to meet demand, but that could change in the future, potentially putting copper miners in a bind.
“While the sector has ample reserves to meet demand in the near term, the sector faces a drop-off in mine supply in a decade or so, with few major copper developments entering the project pipeline. It is a long-term issue without a simple solution,” according to S&P Global Market Intelligence.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.