Copper — traditionally seen as a leading indicator of economic health — had a tough year in 2022.
United States Copper Index Fund ( CPER Quick Quote CPER - Free Report) is up 6.4% in the year-to-date frame (as of Feb 6, 2022). And analysts expect further recovery in copper prices in 2023.
Some of Wall Street’s biggest banks in recent weeks have suggested a combination of short-term supply tightness and a global push for green investments will act as tailwinds for the red metal, as quoted on CNBC.
Let’s delve a little deeper.
There are constant warnings from miners that a “huge deficit” is looming for the key industrial metal – copper. A copper deficit is set to prevail throughout 2023 — and Wood Mackenzie’s Vice President of Metals and Mining, Robin Griffin predicts the deficit could possibly extend throughout the rest of the decade, said Wood Mackenzie’s Vice President of Metals and Mining, Robin Griffin,
as quoted on CNBC.
Glencore Plc, which is one of the world’s top copper miners and traders, recently indicated that while some people were assuming that the industry would boost supplies as it had in previous cycles, “this time it is going to be a bit different,”
as quoted on mining.com.
With decreasing prices, as well as the growing likelihood of a global growth slowdown, the strategist says the incentive for suppliers to create new copper mines falls. The biggest copper producers in 2021 were Chile, Peru, the Democratic Republic of Congo (DRC) and China, Political unrest is quite frequent in Chile, Peru and DRC. Last year, it was reported that Chile's copper production started to threaten the country's water supply,
as quoted on abc.net.au. Global Push for Clean Energy
Copper is used in electric vehicles and renewable energy productions. Emerging trends for making the world carbon-free, President Biden’s intention to boost clean energy in the United States, Europe and China’s keen efforts to spread clean energy over the long run are good for copper demand.
According to a 2021 report by Goldman Sachs, by its lowest estimates, renewable energy sources – like wind, battery and solar – will drive copper demand up about 600%, or 5.4 megatonnes, by 2030,
quoted on ABC.net.au. In the case of "hyper adoption of green technologies", this demand would jump to 8.7 megatonnes by 2030, an uplift of 900%, according to the report. China’s Supportive Measure
China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of the global copper demand. Reopening of Chinese cities after a strict zero-Covid policy in 2022 is likely to boost the demand for copper in the Country. China is also providing supportive measures to its ailing real-estate sector.
Likelihood of Moderation in Greenback Strength
The Fed has slowed down the magnitude of rate hike to start 2023. If the rate hike momentum too cools down ahead, the U.S. dollar may lose the immense strength that it gained in 2022. Notably, most of the commodities are priced in the U.S. dollar. Hence, a decline in the greenback is a plus for the U.S. dollar.
Against this backdrop, investors may want to keep a close tab on the below-mentioned copper ETFs.
ETFs in Focus United States Copper Index Fund ( CPER Quick Quote CPER - Free Report)
The underlying SummerHaven Copper Index Total Return reflects the performance of the investment returns from a portfolio of copper futures contracts on the COMEX exchange. The fund charges 88 bps in fees.
iPath Series B Bloomberg Copper Subindex Total Return ETN ( JJC Quick Quote JJC - Free Report)
The Bloomberg Copper Subindex Total Return reflects the returns that are potentially available through an unleveraged investment in the futures contracts on copper. The note charges 45 bps in fees.