Three ETFs to Play High Copper Prices
should benefit from high copper prices -- despite weakness in U.S. demand.
The metal recently has been trading at its highest levels in months.
Demand from the U.S., which is the world's second largest consumer of copper, is expected to continue to be weak, as the nation's housing sector continues to take a beating. Building and construction account for nearly 50% of copper usage in the U.S.But continuing high levels of demand from China are expected to more than make up for the U.S. shortfall and provide positive price support for the industrial metal. In fact, according to the Shanghai Futures Exchange, stockpiles of copper dropped to their lowest levels in six months and imports rose to their highest levels in the past four months, both indicators that demand is exceptionally healthy in China. Furthermore, China's economy is expected to continue to see stellar growth, and this will enable the nation to sustain its appetite for copper, which is a major component in making wires and pipes for construction and manufacturing. Another indicator that global demand for copper is on the rise is the decline of copper inventories recorded by the London Metals Exchange. In fact, inventories have decreased by nearly 20% this year, and metals and mining giant BHP Billiton (BHP) recently took a positive view on the metal as customers restock supplies and push premiums up. Lastly, copper trends are positive in Japan, which saw increases in copper wire and cable shipments for the seventh month in a row -- despite weak GDP growth. As mentioned earlier, some ways to play copper include: iPath Dow Jones Copper Index, which is a senior, unsubordinated, unsecured debt security designed to provide investors with cost-effective exposure to copper. PowerShares DB Base Metals, which holds futures contracts in copper, aluminum and zinc and allocates a 33% weighting to each commodity. iShares MSCI Chile Index, which offers exposure to Chile, which accounts for nearly one-third of global copper production. When investing in these equities it is important to consider the inherent risks that are involved. To help protect against these risks, investors should use an exit strategy that identifies specific price points at which downward price pressure is likely to be seen. Such a strategy can be found at www.SmartStops.net. --Written by Kevin Grewal in Houston. At the time of publication, Grewal held shares of the iShares MSCI Chile Index.
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