A Surprise YTD Rally in Copper ETFs | ETF Trends

One of this year’s thematic surprises has been the outperformance of copper and copper-themed ETFs. There have been outsized returns ranging from 16% to over 20% YTD. Copper is a commodity metal known historically as “Dr. Copper” by economists based on its usefulness in assessing the “health” of the economy.

Copper is one of the most widely used metals in the world. It is essential in many industries, from building and construction to electronics and, more recently, renewable energy applications. This would include electric vehicles and solar and wind power.

What’s Going on With Copper?

Copper is trading at nearly $10,000 per ton. There are thoughts on driving its price to a fresh two-year-high on concerns that supply will fail to keep up with demand. Supply disruptions at mines and smelters initially fueled copper’s rally. There was a closure at a giant mine in Panama. Disruptions occurred at the Las Bambas copper mine in Peru. Plus, we’ve seen growing concerns about declining output from Zambia. These mining disruptions have negatively impacted Chinese smelters. The firms said they would trim output by 5-10% after the country’s many years of building expansion, which have resulted in limited concentrated supply and overcapacity.

Amid supply shortages, several potential catalysts could continue to drive copper demand higher.

  1. Recovery in China’s Property Market – Government stimulus aimed at the country’s property sector could spur a revival of building and construction.
  2. Rising Demand for Clean Energy Solutions – According to the International Energy Agency (IEA), annual copper demand is expected to double by 2030. Copper is key in many clean energy technologies, including battery storage, bioenergy, electric grids, EVs, solar PV, and wind.
  3. Lower Interest Rates, Strong Economic Conditions – Lower interest rates and a weaker U.S. dollar are two other potential near-term economic catalysts. India’s massive infrastructure spending boom could also be an economic tailwind. To the extent, there is continued evidence of economic growth, that equates to more strength for Dr. Copper.

Copper ETF Plays

There are two ways for investors to get exposure to copper in an ETF:

  • Copper Futures – commodity ETFs that hold copper futures,
  • Copper Mining Stocks – tangentially through an ETF holding portfolio of copper stocks.

Copper Futures ETF

United States Copper Index Fund (CPER) — This ETF attempts to track the price of copper by holding futures contracts. Given its futures exposure, CPER has a higher expense ratio of 97 basis points, but it is up 16.4% YTD. CPER has been around since November 2011 and holds $188 million.

Copper Mining Stock ETFs

Global X Copper Miners ETF (COPX) — The fund gives investors copper exposure by holding a basket of copper mining stocks. COPX has an expense ratio of 65 bps and a YTD performance of 22.6%. The ETF was incepted in April 2010 and has $2.2 billion in AUM.

iShares Copper and Metals Mining ETF (ICOP) — The fund owns stocks that are primarily engaged in copper mining and some that derive less than half of their revenue from copper mining. ICOP has an expense ratio of 47 bps and a YTD performance of 18.7%. It is a newer entrant, launching in June 2023, and has only $15.3 million in assets.

Sprott Copper Miners ETF (COPP) — This is the newest copper ETF, building on Sprott’s success in other mining categories like Gold and Uranium. COPP has an expense ratio of 65 bps. It has generated $217 million in assets since its launch on March 5 of this year. Its since-inception return is 23.5%.

Sprott Junior Copper Miners ETF (COPJ) — The only ETF focused on junior copper miners, COPJ launched in February 2023 with a 75-basis-point expense ratio. Its assets under management are only $8.8 million, but its YTD return is 19.9%. Junior miners are riskier exploration companies without their own mining operations, but they tend to be more sensitive to the underlying commodity price.

Will the Copper Boom Continue?

Another positive signal is indications of improvement in PMI manufacturing activity in the U.S. and China, with the Chinese number now at 50.8 and US figures at 51.9, both indicating expansion. Should rates come down, reaccelerating renewable energy project growth, copper prices could continue to soar, especially in the absence of new supply.

Copper is not the only metal setting record highs this year. Gold, silver, and aluminum also see strong pricing as geopolitical factors, not just economics, have come into play.

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