What Does Government Intervention in Copper Markets Mean for ETFs?
The US government has recently taken equity stakes in companies like Trilogy Metals and MP Materials in order to secure domestic supply chains. That puts ETFs like the United States Copper Index Fund (ticker CPER) and USCF Daily Target 2X Copper Index ETF (ticker CPXR) in the spotlight. What do these government moves mean for the copper market overall?
The government taking an interest in a private company is always a double-edged sword. Copper is a critical material for US infrastructure and many industries, so it makes sense that the government would take an interest in supporting that industry. Globally, over the last 15 to 20 years, there has not been enough investment in capital expenditures to produce new copper. The US especially produces really low amounts of copper. We get a lot of it from South America, some from Asia, and a little bit internally.
As geopolitics are shifting, it makes sense to try to boost domestic supply. The troubling thing is that it takes a long time to bring new supply online. It's smart to try to boost that, but it's going to be a while before that starts to add to our portfolio of copper as a country. Demand for copper is rising and is expected to outpace supply for many years.
Even though the government has done this, it's going to be a while before that pays off, if ever, because copper demand is rising. We think the fundamental story for copper is the demand and the fact that there's just not enough supply, and new supply won't come online for 10 to 15 years, most likely. It'll start to, but to a meaningful level, it's going to be a while.
