Will China Pull Copper ETFs Down? - Zacks.com

By Zacks Investment Research / April 12, 2016 / www.zacks.com / Article Link

Last week, copper prices witnessed the biggest weekly decline since January on oversupply concerns in China and sluggish demand growth. After a stressful stretch in 2015 due to softness in China's manufacturing sector, global growth worries, a stronger U.S. dollar and surplus supplies, the red metal had shown recovery in 2016 (read: ETFs to Gain from China's Added Stimulus). But the trend took a U turn once concerns related to oversupply in China surfaced. While there are many factors influencing the price of copper, events in China are major contributors as the country is the world's biggest consumer of this industrial metal, making up roughly 40% of the global copper demand. However, per the latest LME data, China's shipments to Singapore jumped 4,800 tonnes, boosting exports and leading to worries about domestic oversupply in China. As per state-backed research firm Antaike, China could be holding more than 1 million tonnes of refined copper stocks at present, including bonded stocks, exchange stocks and metal held by traders and smelters (read: China ETF Investing: Will it Buoy up or Dip Down in 2016?). Historically, the strongest period of demand for copper from China is in the second quarter as production of cables and wires are highest during this period. However, sectors that import copper including construction and manufacturing have been hit hard. Thus, if China resorts to exporting copper instead of importing, it could send a major shockwave to red metal prices across the globe. Meanwhile, most of the other developed and developing economies are also experiencing sluggish growth, which in turn is weighing on the global demand for copper and dampening its appeal. Oversupply concerns in China could intensify the global supply glut and drive copper prices further down. This brings our attention to copper ETFs - iPath Bloomberg Copper Subindex Total Return ETN (JJC), United States Copper Index Fund (CPER) and iPath Pure Beta Copper ETN (CUPM). These funds have a Zacks ETF Rank of 3 or Hold' rating (see: all the Industrial Metals ETFs here). iPath Bloomberg Copper Subindex Total Return ETN The ETN tracks the Bloomberg Copper Subindex Total Return, which seeks to deliver returns through an unleveraged investment in the futures contracts on copper. The index currently consists of one futures contract on the commodity of copper (currently the Copper High Grade futures contract traded on the COMEX). The product charges investors 75 bps a year in fees, and has a lower level of AUM of $29.6 million. It trades in paltry volume of about 26,000 shares a day on average. The ETN shed nearly 4.4% in the last 5 days (as of April 8, 2016) (read: Have Copper ETFs Finally Bounced Back?). United States Copper Index Fund The fund seeks to track the performance of the SummerHaven Copper Index Total Return, plus interest income from CPER's holdings. The index provides investors with exposure to a portfolio of copper futures contracts. The product has amassed $2.8 million in its asset base while it sees paltry volume of about 2,000 shares a day. Expense ratio came in at 0.65%. The ETF has lost 3.8% in the last 5 days. iPath Pure Beta Copper ETN This note seeks to match the performance of the Barclays Copper Pure Beta Total Return Index. This can roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology lowering the effect of contango. The note has amassed $1.8 million in its asset base and trades in a meager volume of about 250 shares a day. Expense ratio came in at 0.75%. CUPM is has gained 0.5% in the last 5 days. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

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