Copper Getting Redder Ink-wise

By Brad Zigler

The red ink for the red metal keeps getting more red. Copper prices extended their losses Tuesday after a smaller-than-expected rate cut from the Fed disappointed traders. The Fed's 25-basis-point cut dashed a lot of hopes.

Trade had been choppy for COMEX copper yesterday. The March 2008 delivery settled 30 cents lower to $3.09 per pound in the New York Mercantile Exchange's regular trading session. The losses really started to mount in electronic after-hours trade, which set the stage for a downside breach of the $3.00 mark this morning.

Investors and traders now have several alternatives to dealing in the futures market. There are four industrial metals ETFs and ETNs. Sensitivity to the metal’s price movements and liquidity vary considerably. Sensitivity is a function of copper’s weighting in the portfolio as well as index construction rules. Liquidity, in large part, determines the width of the bid/ask spread likely to be encountered.

The purest exposure can be found in the iPath Dow Jones-AIG Copper exchange-traded note (JJC). Of all the ETF/ETN portfolios, JJC is the least liquid, trading only 2,400 notes per day. Its liquidity index – that is, the size of a trade associated with a 1 percent move in price – is only 800 shares. Bid/ask spreads are running at 0.51% currently.

Despite its 43% weighting in copper, the iPath-AIG Industrial Metals ETN (JJM) actually ended up yesterday. A lesson here for cuprophiles: The biggest single weighting can be trumped by the force of the other metals in the portfolio. Spreads for JJM are 0.70% wide.

The most liquid of the metals portfolios is DBB – the PowerShares DB Base Metals ETF. With a third of its weighting given over to the red metal, DBB tracked copper’s downward price movement yesterday. Spreads are running at 0.39% currently.

Last, there’s the ELEMENTS Rogers International Metals ETN (RJZ). With 19% of its underlying index devoted to copper, the other metals held enough sway yesterday to result in a draw. Price action for the note was flat yesterday. Bid/ask spreads tend to be 0.43% wide now.

Copper-Influenced ETFs/ETNs

Name (Ticker)	Nominal % Copper	12/11 Price Change	% Change	12/11 Last	Average Daily Volume	Liquidity Index
iPath DJ-AIG Copper (JJC)	100%	-$0.49	-1.12%	$43.40	2,400	800
iPath DJ-AIG Industrial Metals (JJM)	43%	+$0.20	+0.43%	$44.76	6,200	1,600
PowerShares DB Base Metals (DBB)	34%	-$0.21	-0.85%	$23.31	83,300	46,900
ELEMENTS Rogers Int’l CI Metals (RJZ)	19%	$0.00	0%	$9.32	14,500	13,800