At the same time that nickel has moved steadily higher in 2014, copper has done just the opposite. The red metal has been the worst performer of all the commodities we follow, though it has attempted to rebound somewhat in recent weeks.
For copper, the problem has been China. Accounting for 40 percent of global consumption, the slowdown seen in China's economy has been a major drag on copper. But it hasn't just been China's slowdown per se that has hurt copper. Rather, it's also been hit by fears that the enormous copper stockpiles tied to financing deals in the country could be unwound.
Speculation that there could be a great unwinding of copper-backed deals began when news of China's first-ever onshore corporate bond default broke in March. Analysts estimate that perhaps one-third of China's copper imports and one half of its copper stockpiles are used for financing. Thus, if a string of companies began to default in China, that would be bad news for copper.
Bull Case: Still, perhaps these fears have been overblown. It's unlikely that the Chinese government would allow too many corporate defaults, which could destabilize the economy. Moreover, there is nothing to say that copper won't continue to be used as collateral in financing deals. In a year in which most commodities are up, copper may be a bargain at these levels.
Bear Case: If the worst-case scenarios envisioned earlier this year come to pass, enormous amounts of copper could be liquidated, putting significant downward pressure on prices. Analysts at Goldman Sachs estimate that 1 million metric tons of copper could be liquidated over the next year or two, which would certainly be bearish for the market.
Prediction: The copper unwind story is already priced in after copper's underperformance so far this year. Prices won't fall much further barring a notable deterioration in China's economic outlook. If that's the case, the iPath Dow Jones UBS Copper Subindex Total Return ETN (JJC | B-57), which tracks front-month copper futures, may be a good bet.