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Copper ETFs See Small Respite in Rough Road Ahead

Softening their worst week in a month, copper prices and metal-related exchange traded funds rallied Friday on a weaker U.S. dollar and potential production cuts.

The iPath Dow Jones-UBS Copper Subindex Total Return ETN (JJC) , an exchange traded note that tracks copper price movements, jumped 3.7% Friday and United States Copper Index ETF (CPER) increased 3.5% as Comex copper futures gained 3.0% to $2.1055 per pound. JJC dipped 1.1% over the past week and declined 30.9% year-to-date. CPER fell 1.2% over the past week and decreased 28.3% year-to-date.

Meanwhile, on Friday, producers equities-backed First Trust ISE Global Copper Index Fund (CU) was up 0.7% and Global X Copper Miners ETF (COPX) was 1.6% higher. Year-to-date, CU plunged 46.8% and COPX plummeted 50.1%.

While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.

“The low price environment has triggered some plans to cut back production, so this is short term support for copper prices,” analyst Chunlan Li of CRU told Reuters. “For next year, we think the price could touch lower because the macro environment is not good and the USD is strengthening. Demand is picking up a little bit but it’s not very strong … meanwhile miners are cutting costs which is cutting price support.”

The U.S. dollar is expected to appreciate against foreign currencies as the Federal Reserve embarks on monetary tightening while international central banks are largely enacting looser policies to stimulate growth. As the U.S. dollar strengthens, the USD-denominated commodities will likely weaken on lower overseas demand. [Commodity ETFs Take Beating from Fed]

Moreover, China, the world’s second largest economy, has been grappling with weaker growth, raising concerns over its ability to maintain previous levels of demand for raw materials, like copper.

Meanwhile, in the copper producers space, Moody’s Investors Services downgraded mining giant Glencore’s credit rating to one notch above junk status, reports Olivia Kumwenda-Mtambo for Reuters. [Glencore’s ETF Impact]

“Our decision … reflects our expectations that the pricing environment in mining will remain unfavourable in 2016-17, making a return to the previous level of earnings unlikely,” Moody’s lead analyst on Glencore Elena Nadtotchi said in a statement.

iPath Dow Jones-UBS Copper Subindex Total Return


For more information on the copper market, visit our copper category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.