DBB Invesco DB Base Metals Fund

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 (see Is the Copper ETF Back on Track?).

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 (see Time to Sell This Commodity ETF?).

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 (see Copper Mining ETFs Head-to-Head).

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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PWRSH-DB BM DL (BDD): ETF Research Reports
 
GLBL-X COPPER (COPX): ETF Research Reports
 
FT-ISE GLBL COP (CU): ETF Research Reports
 
PWRSH-DB B METL (DBB): ETF Research Reports
 
IPATH-DJ-A COPR (JJC): ETF Research Reports
 
IPATH-DJ-A I MT (JJM): ETF Research Reports
 
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