After rising for most of the year, copper prices look ready to pull back, and they already have. This, of course, creates an opportunity for exchange traded fund (ETF) investors to access an area of value with funds like the Global X Copper Miners ETF (COPX).
As opposed to getting exposure to copper prices directly via futures or even spot prices, COPX makes a backdoor play on miners. As the demand for copper rises again, miners will need to ramp up their activity, thus correlating with the increase in prices.
As far as the fund description goes, COPX seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Global Copper Miners Total Return Index. The index itself is designed to measure broad-based equity market performance of global companies involved in the copper mining industry.
As opposed to getting precious metals exposure, copper offers investors an alternative for investing in industrial metals. Rather than simply being a store of value, copper has utility, making it more vulnerable to the economic forces of supply and demand.
In the current market environment, China’s influence will have a profound effect on copper prices. Despite rising global inflation, China’s copper production has not wavered.
“China imported 2.37 million tonnes of refined copper in the first eight months of 2022, up 7.4% year on year, official data showed,” a Reuters report noted. “A Chinese copper tube maker expected more purchases after China’s National Day holiday, which lasts from Oct. 1 to Oct. 7.”
China Demand Will Sway Prices
A surge in COVID-19 cases also tamped down supply for copper. As such, it’s even more surprising that imports still increased in 2022 despite the supply chain headwinds thanks to a resurgence in COVID-19 cases.
China’s social distancing lockdowns to keep the virus in check may have stifled demand for copper, but relaxing protocols could re-establish supply in order to meet demand. Optimism surrounding production has allowed copper to pull back from five-month highs, which is where investors can jump in if they feel copper prices could be on the move higher once again.
“Relaxed protocols for covid prevention helped start the rally last week,” said Giles Coghlan, analyst at broker HYCM.
“The announcement of the 16 point property support plan is further good news supporting a return to demand for copper and underpinning prices,” Coghlan added.
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