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Good Times Ahead for Copper ETFs?

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Copper prices had a tough run in the last one year, but are likely to pick up ahead, at least in the near term, on rebounding factory activity data from China. Bank of America analysts recently upped their price forecast for copper in 2020 by 5.4% to $5,621/t, while keeping the 2021 projection unchanged at $6,250/t. Copper prices are now trading at an 11-week high.

Copper prices just recorded a second successive month of gains, driven by hopes for a recovery, global economic reopening and further fiscal and monetary stimulus from China. Notably, China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, accounting for roughly 40% of global copper demand.

The Caixin China General Manufacturing PMI rose to 50.7 in May 2020 from 49.4 in the previous month and beating market consensus of 49.6. This was the highest reading since January as coronavirus-led restrictions lifted. Output grew the most since January 2011 and buying levels increased slightly. However, demand remained subdued on weaker export orders.

China’s Policy Easing

China’s central bank vice governor recently indicated that the economic hit from the coronavirus pandemic was harder than what was expected initially and that more monetary and credit policy support was needed. The People’s Bank of China also said it would start buying 400 billion yuan of bank loans made by local lenders to small businesses to encourage banks to lend as much as 1 trillion yuan ($140.44 billion).

The move would suggest interest-free loans to small banks based on 40% of their lending to small firms. The new loans will not necessitate collateral and guarantees, removing a key hindrance for such borrowers, per central bank officials.

The PBOC will also provide 40 billion yuan in relending funds to conduct interest rate swaps with local banks through a special purpose vehicle, which it said would help banks extend loans with a principal value of about 3.7 trillion yuan, per Reuters. All these efforts point toward more manufacturing activities.

“Strong physical demand for copper in China, plus tight scrap supplies, are encouraging bearish speculators to close out positions and supporting its rebound in recent weeks,” said analyst Nicholas Snowdon at Deutsche Bank in London, as quoted on Reuters.

Against this sluggish backdrop, it shouldn’t be too surprising to think that copper ETF investing options will see some gains in the coming days (see all industrial metal ETFs here).

Investors should definitely monitor these options, as they represent easy ways for the average investor to tap the copper market. These options are:

iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC - Free Report)

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 fund charges 45 bps in fees.

Global X Copper Miners ETF (COPX - Free Report)

This ETF represents an equity option for copper investors, tracking the Solactive Global Copper Miners Total Return Index. This fund holds 27 stocks in its basket and charges 65 basis points a year in fees for the exposure. American firms make up just 5% of assets, leaving a one-fourth of the basket for Canada, and 13% for China.

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