Copper ETPs' Underperformance is Worrisome for Broader Economy

After touching a near four-year high in 2017, copper prices, along with related exchange traded products, have weakened this year, underperforming the broader commodities market.

Copper prices have declined 5.9% in 2018, with Comex copper futures now trading around $3.121 per pound. The metal is now underperforming the benchmark S&P GSCI Index of 24 commodities by its widest margin over the last two decades, other than the start of 2016, reports Amrith Ramkumar for the Wall Street Journal.

The iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJCTF) declined 7.5% and United States Copper Index Fund (NYSEARCA: CPER) fell 7.1% year-to-date. Meanwhile, the iShares S&P GSCI Commodity-Indexed Trust (NYSEARCA: GSG), which tracks the S&P GSCI Total Return Index, gained 11.5% so far this year.

The widening gap between copper prices and the broader commodities index is concerning for investors because copper is used to build everything from airplanes to smartphones. Copper’s underperformance is particularly noteworthy when compared to crude oil’s 20% gain this year – oil and copper are two of the most actively traded commodities.

Diminished Demand for Raw Materials

Some observers pointed out that the escalating trade-war rhetoric may have contributed to protectionist trade policy fears. Traders may have been worried that the slower activity and impediments to free trade would lead to a weaker global economy, which would diminish demand for raw materials like copper. Furthermore, fears of an economic slowdown in China, the world’s largest commodity consumer, and recent data out of Europe and Japan have exacerbated concerns.

“Growth isn’t as synchronized as it once was,” Edward Meir, a strategist at broker-dealer INTL FCStone, told the WSJ. “Copper is reacting more to that slowdown.”