Copper ETFs Shoot Upwards on a Widening Supply Deficit | ETF Trends

Copper-related exchange traded funds were among the best performers on Friday, with copper prices breaking $4 per pound for the first time in over 9 years on growing expectations of a global economic recovery that could fuel demand for industrial metals.

On Friday, the United States Copper Index Fund (NYSEARCA: CPER) was up 3.5% and iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) was 4.2% higher. The Global X Copper Miners ETF (NYSEARCA: COPX), which takes a more focused approach to copper miners, increased 5.5%.

Meanwhile, Comex copper futures rose 4.2% to $4.069 per pound.

Copper demand and prices “should continue to benefit from a recovering global economy and [a]transition to ‘green’ energy sources,” Brent Cook, an economic geologist and senior adviser for the newsletter Exploration Insights, told MarketWatch.

The base metal is also finding support from the supply side. Metal miners suffered production slowdowns due to COVID-19 restrictions, and while supplies should pick up speed in 2021, the market will likely continue to be unable to meet demand in the years ahead.

Diving into Copper’s Supply and Demand Dynamics

Cook argued that estimates for supply increases range between 1.5% and 3.5% while demand is “projected to significantly exceed supply.” The supply deficit is projected to increase over the next five to 10 years “primarily due to a dearth of new copper deposit discoveries, the time line to bring a deposit into production,” which can reach for a large deposit, and the fact that “most of the major deposits currently in production are in their ‘golden years’.”

According to the International Copper Study Group (ICSG), world mine production declined by 3.5% over the April to May period in 2020 due to COVID-19 related global lockdowns that triggered temporary mine shutdowns and lower production levels.

The ICSG also found that world refined copper production rose by 1.5% for the first 10 months of 2020 but calculated that world refined copper usage increased by 2% over the same period, which reflected an ‘apparent deficit’ of about 480,000 metric tons due to the rebound in Chinese demand.

John Caruso, senior asset manager at RJO Futures, also told MarketWatch that there is a “very bullish economic backdrop for copper,” coupled with an expected infrastructure package out of Washington, D.C. and strong Chinese demand. He added that “longer-term supply [and]demand fundamentals are very bullish and could fuel a multiyear rally.”

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