COPX - JJC: Exploring Mining Companies For A Positive Outlook On Copper Prices

2023-05-23 17:31:04 ET

Summary

• Despite recent copper price weakness, a deeper analysis reveals a more positive outlook for the market.
• Examining the performance of copper mining companies, represented by COPX, suggests that the decline in copper prices is unlikely to continue.
• In contrast to the spot copper price, copper mining companies have a duration component to them, making them a more reliable indicator to assess the fundamental picture of the market.
• The resilient performance of copper mining companies, implies that the copper market may be more constrained than initially perceived. This suggests a potential upward trajectory for copper prices in the near future.
• Investors who share our optimistic view on copper prices may consider the JJC iPath® Series B Bloomberg Copper Subindex Total Return ETN as a potential buying opportunity. This exchange-traded note tracks the performance of copper prices and could offer exposure to potential upside in copper prices.

Thesis

While recent weaknesses in copper prices may portray a seemingly weak fundamental landscape, a deeper exploration of the market reveals an alternative perspective. By examining the performance of copper mining companies, as represented by Global X Copper Miners (COPX), a more optimistic conclusion can be drawn about the fundamental strength of the copper market and the outlook for copper prices. In light of this, we believe that the iPath® Series B Bloomberg Copper Subindex Total Return ETN (JJC), an exchange-traded note that tracks relatively closely the performance of copper prices, could represent a potential buying opportunity for investors who agree with our optimistic view.

About JJC

The iPath® Series B Bloomberg Copper Subindex Total Return ETN is an interesting investment vehicle for investors seeking exposure to the price fluctuations of copper.

The fund summary for JJC is as follows:

The iPath® Bloomberg Copper Subindex Total ReturnSM ETN is designed to provide exposure to the Bloomberg Copper Subindex Total ReturnSM (the "Index"). The Index reflects the returns that are potentially available through an unleveraged investment in the futures contracts on copper.

Its annual expense ratio is 0.75%.

As the below chart contrasting the ETN and Index demonstrates, JJC follows copper prices relatively closely.

Source: iPath

COPX Outperforms Copper Prices since Q4 2022

Since Q4 2022, COPX has returned around 28% while spot copper prices have appreciated by only 17%.

Looking beyond the weakness in copper spot prices

When analyzing the copper market, it is essential to understand that the spot price of copper does not have a duration component to it, meaning it is only an indication of what the price for demand is today.

While the recent weakness in copper prices may paint a weak fundamental picture of the copper market, observing the performance of copper mining companies, as reflected by COPX, allows us to reach an alternative conclusion.

Examining the relationship between copper prices and COPX, accounting for a 9-day lag, reveals a brighter outlook for copper prices.

A 9-day lag was determined in our model following the results of the Granger Test, a statistical method for determining causality. The test revealed that at the 9-day lag, there is an existence of Granger causality.

This means that past values of COPX have the potential to predict or influence changes in copper prices.

In light of this analysis, a favorable outlook for copper is forming. If the prior performance of copper mining companies, as represented by COPX can be used as a leading indicator for changes in copper prices, this suggests that the resilient performance of COPX could indicate that the decline in copper prices is unlikely to continue. This also implies that the copper market, beneath its surface appearance, maybe more constrained than initially perceived.

Conclusion

To sum up, the performance of copper mining companies, which takes into account a temporal element, provides an optimistic perspective on the copper market. There is a potential for copper prices to align with the positive performance exhibited by COPX, reflecting the possibility of an upward price trajectory in the near future. In this context, the JJC iPath® Series B Bloomberg Copper Subindex Total Return ETN emerges as a potential buying opportunity.

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