Copper prices saw a troubled 2014 on Chinese economic slowdown, global growth worries, a multi-year high greenback and a supply glut. In fact, the situation was so messy that copper prices plunged to a five-year low to start 2015.
While there are many factors regulating 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.
Thus, a prolonged manufacturing slowdown in the world’s second largest economy cast a dark cloud over the red metal. The scenario in the U.S. – the world’s second-largest copper user — also turned cold to close 2014.
A Ray of Hope?
However, the recent spate of policy easing in China brought some much-needed relief for the metal. Copper prices spiked to a six-week high to start March as the People’s Bank of China (PBOC) slashed the one-year deposit rate by 25 basis points to 2.5% and the one-year lending rate by the same amount to 5.35%, effective March 1. This stimulus is expected to bring the waning manufacturing sector back to life and in turn boost the demand for this industrial metal.
Prior to this, PBOC surprised the global market on February 4 with a cut in reserves requirement ratio (RRR) by 50 bps. This was the first comprehensive cut in the Chinese economy after May 2012 that gifted copper a 7.3% return in February. This was the steepest gain since September 2012, per Bloomberg.
Not only this, investors look for some more easing from the Chinese Central Bank to allay deflationary fears and spur growth. Helped by these positives, copper prices registered the biggest quarterly gain since September.
To reflect these gains, exchange traded products like iPath DJ-UBS Copper TR Sub Index ETN (JJC), iPath Pure Beta Copper ETN (CUPM) and United States Copper Index Fund (CPER), which were almost 17% down in the last one year, have added 2% to 3% returns last week and about 8% return in the last four months. Below we detail one copper ETF and one mining ETF.
iPath Dow Jones UBS Copper ETN (JJC)
This ETN offers investors exposure to front month copper futures tracking the Dow Jones UBS Copper Index. The note has over $51 million of assets under management, while its expense ratio comes in at 75 basis points a year.
Though the product is easily the most popular, investors should note that, as an ETN, JJC carries with it the credit risks of Barclays, though an ETN will have no tracking error. The fund has a Zacks ETF Rank #3 (Hold) with a high risk outlook.