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.
Copper-related ETFs have already suffered, following the coronavirus outbreak. Year-to-date, the United States Copper Index Fund (NYSEARCA: CPER) slipped 7.0% and iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) was 7.1% lower. Additionally, the Global X Copper Miners ETF (NYSEARCA: COPX), which takes a more focused approach to copper miners, declined 9.1%.
Meanwhile, Comex copper futures have dipped to $2.55 per pound from $2.80 at the start of the eyar.
“Prices certainly have further to fall, especially if the contagion intensifies,” Hakan Kaya, senior portfolio manager of the Neuberger Berman Commodity Strategy fund NRBAX, told MarketWatch, adding that investors may continue to reduce risks in their portfolios even if the virus ends up being an economic “nonevent” outside of China.
“My worry is that almost everyone will be simultaneously looking for a catalyst exit, potentially creating all sorts of liquidity spirals and seriously impacting copper,” Kaya added.
Copper has taken a beating on fears of a slowdown in China, the largest buyer of the industrial metal. Copper futures even experienced 13 consecutive sessions of declines on Monday, the longest such losing streak on record based on data going back to 1984, according to Dow Jones Market Data.
While John Caruso, senior asset manager at RJO Futures, argued that copper was “undoubtedly oversold,” he warned that “China is the world’s largest consumer of raw commodities, and with both an economic slowdown and a possible pandemic, traders are having a difficult time gauging true value at the moment.”
Caruso also added that China’s economy was already on shaky grounds before the coronavirus scare. For instance, Chinese industrial-company profits dipped by 6.3% year-over-year in December after growing 5.4% in November.
“Clearly, industrial demand for copper has slowed over the past quarter, and with the outbreak of coronavirus, this has simply doubled down on the slide in prices and expected demand forecasts,” told MarketWatch. “You’ve got widespread panic in China; commerce and industry will undoubtedly be [affected]by the virus—to what extent is still difficult to determine.”
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