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Ipatha.B Copper Subindex TR ETN(JJC-A)
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Copper Tries To Stabilize

Barchart - Tue Jul 26, 8:52AM CDT
Metals - Copper Pipes

The over 37% decline in the COMEX copper futures market took the price from $5.01 in March to a low of $3.15 in July. On July 26, copper futures were sitting at the $3.40 level after recovering from the recent low. Copper is a barometer for the health and wellbeing of the global economy. With inflation running at a four-decade high, interest rates increasing, and the US dollar moving to a two-decade high against the euro and other world reserve currencies, copper has experienced significant selling pressure. 

While the path of least resistance of copper futures has been lower over the past months, supply and demand fundamentals suggest the red nonferrous metal will find a bottom and move higher later this year or in 2023, reaching another record peak. The iPath Series B Bloomberg Copper Subindex Total Return ETN product (JJC) moves higher and lower with copper’s price. 

Record highs in May 2021 and March 2022 led to corrections

Nearby COMEX copper futures traded at the lowest price since 2009 in late 2016, when the price reached $1.9365 per pound. 

The chart highlights copper futures copper made a high low of $2.0595 in March 2020 when the global pandemic gripped markets across all asset classes. Copper more than doubled to a record high of $4.8985 in May 2021 before correcting to just under the $4 per pound level in August 2021. After rising to another new all-time peak of $5.01 in March 2022, copper corrected, reaching a low of $3.15 in July 2022 and was at the $3.40 level on July 26. 

Copper is critical for the green energy initiative

In early 2021, when copper was on its way to just below the $4.90 level, Goldman Sachs analysts published a research report saying that the red nonferrous metal is critical for decarbonization. Electric vehicles, wind turbines, and other initiatives requiring alternative and renewable fuels rely on increasing amounts of copper. 

Meanwhile, the war in Ukraine, sanctions on Russia, and Russian retaliation have pushed fossil fuel prices to multi-year highs. Crude oil, natural gas, and coal prices have soared over the past months, increasing the demand for copper.

LME copper inventories are trending lower- COMEX copper stocks have been declining

The London Metals Exchange is the most liquid market for producers and consumers. The industrial hedgers favor the LME because of its flexibility compared to the COMEX futures market. While the futures offer a physical delivery period for each expiring contract, physical delivery in the LME forwards can occur on any business day. 

The long-term trend in LME copper inventories supports the rising industrial demand. 

Source: LME/Kitco

The chart shows the pattern of lower highs and lower lows in LME copper inventories. 

Over the past two months, COMEX copper stockpiles have been declining. 

Source: COMEX/Kitco 

The chart shows the drop from over 80,000 to below 63,000 metric tons since late May 2022.

The trend in LME and COMEX stocks suggests that robust copper demand continues to outstrip warehouse inventories in the COMEX and LME warehouses. 

New production takes the better part of a decade

It takes the better part of a decade to bring new copper mines into production, causing the demand to outstrip supplies. The economic slowdown in China because of COVID-19 lockdowns has weighed on the demand since the March 2022 high. Rising global interest rates and a strong US dollar, the worldwide reserve currency, and the pricing mechanism for copper and most commodities have created an almost perfect bearish storm for copper and other base metals over the past weeks and months. 

Meanwhile, when China overcomes the current economic slowdown, the worldwide demand will likely come storming back, exacerbating the supply deficit created by the increasing demand and limited inventories, and the current annual production level. 

Buying the dip in copper- JJC is an alternative to the futures

The US and Europe remain committed to addressing climate change by inhibiting hydrocarbon production and consumption and encouraging alternative and renewable fuels that rely on copper and other metals that are integral ingredients in batteries and green energy initiatives. When China’s economy rebounds, we could see copper’s price come storming back, ending the current price correction.

Picking bottoms in any market is dangerous as prices often fall to illogical, unreasonable, and irrational levels during corrections. Buying copper in the current environment may be the optimal approach for the medium to long-term, but it could lead to short-term losses in the current corrective environment. Accumulating copper requires plenty of downside room to add to long positions on further price declines. 

The most direct route for a risk position in the copper market is via the COMEX futures and options or the LME forwards and options. The iPath Series B Bloomberg Copper Subindex Total Return ETN product (JJC) provides an alternative for market participants looking to buy the red nonferrous metal on the current correction as it does an excellent job tracking the base metal’s price. 

At $17.04 on July 26, JJC had $55.005 million in assets under management. The ETN product trades an average of 25,942 shares daily and charges a 0.45% management fee. 

The nearby copper futures price rose from $2.0595 in March 2020 to $5.01 in March 2022, a 143.26% gain.

Over the same period, the JJC ETN moved from $10.67 to $24.87 per share or 133.08%. The correction that took copper futures to a $3.15 per pound low in July 2022 pushed the JJC ETN to $15.86. The futures fell 37.13%, and the ETN dropped 36.23% from the March 2022 high to the July 2022 low. 

While copper trades around the clock from Sunday evening through late Friday each week, the JJC ETN only trades during the hours the US stock market operates. The ETN does not reflect price moves to highs or lows when the stock market is closed.

Copper is attempting to stabilize above the most recent $3.15 per pound low. While it is virtually impossible to pick bottoms during corrections, copper fundamentals remain compelling as the red metal is critical for decarbonization. I favor accumulating copper as a long-term investment at the current price, leaving plenty of room to add on the downside if the correction continues to take the price to lower lows. 



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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.