5 Copper ETFs Poised For Growth In 2011

In 2010, copper locked in a second consecutive annual gain of nearly 33 percent as demand remained elevated due to growth in emerging markets and a weak dollar.  As for the future of the industrial metal, copper’s outlook remains rosy as a supply and demand imbalance is expected to take place providing positive price support to the Global X Copper Miners ETF (COPX), the iPath Dow Jones Copper Index ETN (JJC), the First Trust ISE Global Copper Index Fund (CU), the PowerShares DB Base Metals (DBB) and the iShares MSCI Chile Index (ECH).

According to the International Copper Study Group, a copper deficit of 435,000 metric tons in 2011 is expected to emerge in the markets, marking the first deficit in three years, during which global production has averaged 18 million tons.  On the demand side, one of the primary driver’s of increased demand is economic expansion in emerging markets.  The developing world is expected to at the forefront of global economic growth and with this the need for improved infrastructure and increased construction and manufacturing is expected to keep demand for copper, which is used in electrical wiring, plumbing and in heating and cooling systems, elevated.   

To put it into perspective, demand for copper in China, India, Brazil and the Middle East is expected to increase at an average annual rate of 7 percent per capita through the next four years. 

Broader supply worries are expected to be the true driver behind copper’s expected shine this year.  Global exchange inventories of copper declined by nearly 22% in 2010 and stockpiles are expected to drop to an all time low this year with mines in Chile, long the world’s top copper producer, seeing their deposits exhausted.  Furthermore, new mining and production projects are too small and insufficient to make up for the shrinking volumes and the grade of copper that is being extracted continues to deteriorate. 

As mentioned above, some ways to play copper include:

  • Global X’s Copper Miners ETF (COPX), which is an equity play on copper and focuses on copper miners like Inmet Mining Corp., First Quantum Minerals and Jiangxi Copper Company Ltd. as its holdings.
  • iPath Dow Jones Copper Index ETN (JJC), a pure play on copper which seeks to track the performance of copper futures contracts
  • First Trust ISE Global Copper Index Fund (CU), which is an equity play on copper and includes copper producers and miners such as Southern Copper Corporation (SCCO), Freeport McMoRan Copper & Gold (FCX) and Antofagasta PLC as its top holdings.
  • PowerShares DB Base Metals (DBB), which allocates 33% of its assets to copper futures contracst
  • iShares MSCI Chile Index (ECH), which is a play on Chile, the world’s largest copper producer in the world accounting for nearly 33% of total global copper production. 

Disclosure: No Positions

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