Industrial Metals ETFs: Where Steel And Copper Are Heading

Ever since world economies began their long march toward recovery, base metals, along with related exchange traded funds (ETFs), have seen more demand.

The current supply of copper looks like it may be dropping and steel producers may be flooding the market.

Copper prices jumped more than 3%, hitting a 13-month high on Wednesday, and BHP Billiton (BHP) declared force majeure at the fourth-largest copper mine in the world, reinforcing supply concerns, writes Barani Krishnan and Rebekah Curtis for Reuters. Copper, along with other commodities, rallied as the dollar dipped.

Copper futures for the December delivery finished at $3.0360 per pound on the New York Mercantile Exchange -  the last time copper hovered around $3 dollars was in September 2008.

China Steel, Taiwan’s foremost steel producer, will reduce its domestic price by 4.5% in December, indicating that steel prices could be bottoming out. The company expects steel outlook to improve in 2010 as world economies recover, reports Ken Wills for Reuters.

Analysts are not surprised by pullbacks in the benchmark hot-rolled sheet in coil (HRC) steel price as a result of weak end-use demand, comments Tom Stundza for Purchasing. Production has increased to almost 62% of capacity despite August U.S. steel mill shipments being down 37% from last year.

In a survey of steel buyers, 77% of participants think current inventory levels are sufficient for one or two months and 76% don’t plan on increasing steel orders. Over the next month, 24% expect incoming orders to decline, and 46% expect incoming orders to decline in the next three months.

• iPath DJ AIG Copper TR Sub-Idx ETN (JJC): up 112.7% year-to-date

• Market Vectors Steel ETF (SLX): up 96.6% year-to-date

• iShares MSCI Chile Investable Mkt Idx (ECH): up 67.4% year-to-date; materials constitutes 20.7%, including mining companies

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