May 03, 2013
Base metal ETFs have been chronically weak performers for much of 2013.
The combination of a strong dollar, sluggish manufacturing figures, and
a slumping China have pushed products like copper sharply lower since
the start of the year.
However, Friday marked a huge reversal for the space, as many metals in
the segment saw banner days. In fact, the space led the commodity world
to close out the week, with gains of nearly 6.6% seen in the spot
copper market.
Behind the Copper Price Surge
The story of copper’s turnaround in the past few hours was really a
global phenomenon. First, the increase in copper started in the Asian
markets as investors scooped up the red metal from its lows.
Then in London, investors saw that there have been big drawdowns in
supplies as of late, including a massive 7,425 metric ton drawdown.
Inventories still stand at 608,700 tons,
according to Forbes, but this was the second biggest drawdown in the past four years for the base metal.
The bullish short-term trend continued for copper in the U.S. as the
robust jobs report and the resulting equity surge caused many to buy the
metal. Short covering was probably also at play for the product, adding
to the metal’s impressive surge to close out the week.
ETF Impact
This news was obviously well received by the various base metal and
copper ETFs on the market, as these all rose by several percentage
points on the session, including the following funds:
PowerShares DB Base Metal Fund (
DBB
)
This ETF roared higher by close to 4.4% on the day on volume that was
surprisingly below the average. Copper takes up about 35% of the assets
in the ETF, while aluminum and zinc round out the rest of the portfolio.
iPath Dow Jones UBS industrial Metals ETN (
JJM
)
This product also had a solid session, gaining over 4.5% on
higher-than-normal volume. The ETN holds four commodities in its basket
though—copper, aluminum, nickel and zinc—though it allocates a bigger
chunk to copper at 42% of the portfolio.
PowerShares DB Base Metals Double Long ETN (
BDD
)
For a truly volatile play on the base metal market, investors could
look to BDD and its 200% leveraged exposure. The product has a similar
holding profile to DBB (though less in zinc), and was up close to 8.1%
in Friday trading.
iPath Dow Jones UBS Copper ETN (
JJC
)
And finally, the most popular pure copper product on the market saw its
price surge by nearly 6.7% on the day. Volume was also quite good for
this ETN, as more than 144,000 shares changed hands, roughly double the
normal level.
Copper Mining ETFs
Meanwhile from an equity perspective, the trading was also quite good.
Currently there are two copper mining ETFs on the market;
(
COPX
)
from Global X and
(
CU
)
from First Trust.
Both of these saw volume that was higher than normal, and gains
approaching what investors saw in the commodity market. However, it is
important to note that gains were less in the equity world today, though
these have also been worse performers in the YTD time frame as well.
Bottom Line
Today was a perfect storm in the copper ETF market, as gains were
pretty easy to come by. Not only did the jobs report result in a bullish
trend, but investors also saw international markets pile on as well.
Still, even with this huge turnaround, copper ETF investing has been pretty terrible
throughout 2013. So more than a few sessions like today’s will be
needed to boost copper back to prominence and into the green for the
calendar year.
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For the last (9) months CAVM has been holding a level of support at
$30 (black). After a brief dip below that level last week, the stock has
now gotten back above $30. Assuming the stock moves as it has in the
past, a rise to the $36 resistance (blue) should be in the cards.