Missing The Copper Rally?

July 02, 2014

The red metal has made a nice comback since May.

Copper

A few important things to consider:

  • March represented the four-year low for the red metal, mostly due to slower expected growth from China. That low was set when China reported a surge in copper demand in April.
  • A series of reports have highlighted growing costs for copper miners and a decided lack of new entrants, buoying the prices of entrenched miners like PanAust Ltd (PNA), which may be acquisition targets for larger integrated miners.
  • Inventories at critical London Metals Exchange warehouses are at six year lows, leading to actual supply deficits in June.

All of this points to the classic case for a commodity rally: constrained supplies, increasing demand in a generally positive global economy. ETF investors have good reason to be cautious, however. While the iPath Dow Jones-UBS Copper Total Return ETN (JJC | B-77) has been highly tradable for years, the Global X Copper Miners ETF (COPX | D-99) can trade at wide spreads on thin volume, despite the recent rally in its underlying holdings.

 

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