Where Will Copper ETFs Go From Here?

The commodity ETF space had seen some all-stars to start the year thanks mainly to soft stock markets and the excessive under valuation in the natural resource world. Some metals like gold and silver surged on their safe haven investment status, while some soft commodity ETFs (like cocoa) have added double digits on a supply crunch.

However, significant weakness has been seen in the industrial metals space (such as with copper) in the year-to-date frame. All three exchange traded pure plays on copper haven’t seen gains so far this year. Notably, copper exchange traded products lost around 16% last year.h2 Behind the Slump/h2

The prime reason for this severe slump may be the manufacturing slowdown in the world’s second largest economy, China. The country is the biggest consumer of copper (and other industrial metals) in the world and thus easily regulates the price movement of these industrial metals.

As per Citigroup analyst expects the copper market to see oversupply at least through 2015 and 2016. Thanks to all these issues, iPath DJ-UBS Copper TR Sub Index ETN (JJC), iPath Pure Beta Copper ETN (CUPM) and United States Copper Index Fund (CPER) have lost about 4.25%, 3.87% and 5.20% YTD respectively, underlining the downward trend in the copper market.

While some analysts remain cautiously optimistic on the journey of the red metal in 2014, some anticipate that the prices of copper will take a middle-of-the-road approach and some are downright bearish on the commodity.

As per the range-bound in 2014. Analysts from the likes of BofA Merrill Lynch and INTL FCStone have a neutral view on this industrial metal on growing supplies and moderate demand. Though UBS AG increased its near-term copper price estimate, it believes copper prices this year will remain lower year over year.

In a nutshell, even if copper recoils in 2014 on some short-term positive blips, the long-term trend is surely sluggish due to unfavorable demand-supply scenario. The relative strength Index for the largest copper ETN, JJC, is presently 42.5 indicating that the product is neither in the oversold nor in the overbought territory. Its short-term moving average is below the long-term average. This suggests bearishness for this ETN.

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If the U.S. economy comes up with sound manufacturing and other data in the coming months, which is in fact most likely, the Fed will likely speed up the QE tapering then. This will build worries over continued dollar strength and may mar commodity investing.

In the post-taper world, key emerging markets will also fail to grow at robust rates. Thanks to these factors, we have a Zacks ETF Rank #5 (Strong Sell) for all three exchange traded products that focus on copper, and we are looking for more losses in the space in the months to come as well.