ETFs To Play The Potential Strength In Copper Prices

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Copper prices soared to an 11-month high following an agreement by Chinese smelters to cut production. These smelters are responsible for processing half of the global copper supply. The benchmark three-month copper on the London Metal Exchange (LME) soared to $8,950 per metric ton, its highest point since Apr 20, 2023, and closed at $8,931, up 3.2% on Mar 13.

The surge in copper prices will also provide a boost to miners, driving up stock prices. Investors should tap the trend with ETFs like the United States Copper Index Fund (CPER - Free Report), Global X Copper Miners ETF (COPX - Free Report), Sprott Copper Miners ETF (COPP - Free Report), iShares Copper and Metals Mining ETF (ICOP - Free Report) and Sprott Junior Copper Miners ETF (COPJ - Free Report). These have room for upside in the coming weeks.

During a meeting in Beijing, executives from 19 leading smelters collectively decided to implement capacity management measures, including rearranging maintenance schedules, cutting back on production runs, and postponing the initiation of new projects. However, they have not opted for a unified reduction in output. This decision came as the industry is facing a substantial decrease in treatment and refining charges, pushing fees close to negligible levels.

The copper market is tightening, with Chinese smelter maintenance set to peak in April and May, which could hurt refined copper production, thereby pushing the price higher.

The Chinese government also indicated plans to regulate capacity expansion further by imposing stricter criteria for new smelter constructions, marking a significant shift toward capacity control, similar to measures already in place for other industries such as aluminum and oil refining.

Further, copper is also benefiting from the possible end of the Federal Reserve’s rate hike cycle, with swap traders expecting the central bank to pivot to monetary easing as early as June. The decline in interest rates will push the U.S. dollar lower. A weak dollar makes dollar-denominated assets cheaper for foreign investors, potentially spurring demand for the red metal.

Furthermore, copper is used in electric vehicles and renewable energy production. Emerging trends for making the world carbon-free, President Biden’s intention to boost clean energy in the United States, and Europe and China’s keen efforts to spread clean energy over the long run will fuel copper demand.


ETFs in Focus

United States Copper Index Fund (CPER)

United States Copper Index Fund seeks to track the performance of the SummerHaven Copper Index Total Return. The index is designed to reflect the performance of the investment returns from a portfolio of copper futures contracts on the COMEX exchange.

United States Copper Index Fund has accumulated $127.2 million in its asset base and charges 97 bps in annual fees. It trades in an average volume of 65,000 shares a day and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Global X Copper Miners ETF (COPX)

Global X Copper Miners ETF offers global access to a basket of companies involved in the mining of copper. It tracks the Solactive Global Copper Miners Total Return Index and holds 38 stocks in its basket. Canadian firms take the largest share at 35.7%, while the United States and China round off the next two spots.

Global X Copper Miners ETF has managed $1.4 billion in its asset base while charging 65 bps in fees per year. It trades in a good volume of 508,000 shares a day on average.

Sprott Copper Miners ETF (COPP)

Sprott Copper Miners ETF is the only pure-play ETF focused on large-, mid- and small-cap copper mining companies that are providing a critical mineral necessary for the clean energy transition. It follows the Nasdaq Sprott Copper Miners Index and holds 40 stocks in its basket. Canadian firms take the largest share at 33.7%, followed by the United States (29.3%) and Chile (10.8%).

Sprott Copper Miners ETF has accumulated $1.7 million in its asset base since its inception a week ago and trades in a lower volume of 28,000 shares. It charges 65 bps in annual fees.

iShares Copper and Metals Mining ETF (ICOP)

iShares Copper and Metals Mining ETF offers exposure to 35 global copper and metal ore miners who may benefit from increased demand for this limited resource. It follows the STOXX Global Copper and Metals Mining Index, charging investors 47 bps in annual fees. Here again, Canadian firms take the lion's share at 33%, followed by the United Kingdom (14.8%) and Australia (11.8%).

iShares Copper and Metals Mining ETF has gathered only $5.1 million in its asset base and trades in a lower average volume of 3,000 shares a day.

Sprott Junior Copper Miners ETF (COPJ)

Sprott Junior Copper Miners ETF is the only pure-play ETF focused on small copper miners, selected for their potential for significant revenue and asset growth by tracking the Nasdaq Sprott Junior Copper Miners Index. It holds 40 stocks in its basket, with Canadian firms taking the largest share at 54.4%. Australia and Peru round off the next two spots.

Sprott Junior Copper Miners ETF has AUM of $5.5 million and trades in a lower average daily volume of 3,000 shares. It charges 75 bps in annual fees and expenses.


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