Rising Copper Prices Boost ETF Returns Significantly

Copper Futures Rise Over 8% This Month
Related ETFs Weekly Returns
Higher Than Emerging, Global Stocks, and Gold
Pungsan and Korea Zinc Stocks Also Positive

[Asia Economy Reporter Minji Lee] As major countries have begun to lift the strict lockdowns imposed due to the spread of the novel coronavirus infection (COVID-19) and resumed economic activities, copper prices are on the rise. Additionally, interest is growing in investment destinations that can benefit from the increase in copper prices as the largest copper producer has halted operations due to the impact of COVID-19.

According to the financial investment industry on the 14th, the September copper futures price traded on the New York Commodity Exchange (COMEX) the previous day (local time) recorded $2.9318 per pound. Since the beginning of this month, copper prices have risen by over 8% from $2.71. Copper prices are used as a material in manufacturing and construction industries and are called a "leading indicator of the real economy." After the spread of COVID-19 caused economic activities in major countries to stop, prices fell to $2.1, but currently, prices are about 4% higher compared to before COVID-19.

The prominent reason for the rise in copper prices is the production halt by suppliers due to the spread of COVID-19. Although the impact of China, which accounts for 50% of copper demand, embarking on large-scale infrastructure investment is reflected, ultimately, the price increase is interpreted as being driven by supply shortages. Codelco, which operates the world's largest copper mine and accounts for 10% of global production, has stopped operations as COVID-19 cases surged in Chile. Other mining companies such as BHP, Glencore, and Anglo have also reduced production or resumed mine shutdowns.

Researcher Kwangrae Kim of Samsung Securities explained, "Concerns over disruptions in Chile, the largest supplier of copper ore, are increasing, which will act as a price support factor in the second half of the year," adding, "The labor union at the Chilean mine has warned of a large-scale strike if working conditions do not improve amid the COVID-19 situation, which could further increase supply disruption concerns." Currently, the copper production shares are Chile (27.6%), Peru (11.4%), and China (7.6%) in order.

As copper prices rise, stocks of companies related to copper derivatives and associated businesses are also on the rise. In the past week, copper-investing exchange-traded funds (ETFs) in the global stock market posted an 8.3% return, outperforming emerging stocks (4.4%), global stocks (2.0%), developed stocks (1.7%), and gold (1.3%). The 'Shinhan Copper Futures Exchange-Traded Note (ETN)' listed on the domestic stock market has yielded about 10% returns this month, and the 'Samsung Leverage Copper Futures ETN,' which tracks twice the daily return of futures prices, recorded about 17% returns this month.

Stock prices of companies whose performance is sensitively linked to copper prices are also increasing. The securities industry has issued positive outlooks for Poongsan and Korea Zinc, which process copper and sell non-ferrous metal products. Researcher Yuhyuk Kim of Hanwha Investment & Securities predicted, "The overall strength in metal prices and the rebound in smelting fees could positively affect the performance and stock prices of non-ferrous metal companies." The stock prices of Poongsan and Korea Zinc have risen about 6% and 11%, respectively, this month.