Potential Risks Involved in Copper ETFs

Any exchange traded fund has the potential to do well as long as the demand of its underlying commodity does not drop. The consistency at which the demand for copper has grown over the years and its potential for future growth make the funds secure against drastic downfalls. Copper has seen a steady growth in its demand of almost 30% since the year 2009. This trend is expected to continue considering the demand for copper from countries like China and India and also from other fast emerging markets around the globe.

The global copper requirements per annum are as much as 18 million tonnes. In the year 2011 it is anticipated that the world will face a supply deficit of as much as 400,000 tonnes of copper. This is bound to have a contrasting effect on the prices which will in turn have a favourable effect on Copper ETFs. The demand from countries like India, China and Brazil, which are in their prime developing stages, is expected to grow by as much as 7% per annum in the next few years, which will manage to keep the demand for copper almost intact. This will make investing in these funds a whole lot safer since if there is no downfall in the demand, the prices will not see a downward trend and the funds will continue to do well.

A problem would arise if the demand for this metal starts dropping. Just as is seen with any kind of commodity fund, the value of any exchange traded fund has a direct connection to the public demand of the related commodity. So if the demand for copper starts falling from the current levels, the value of the investment made in copper will also see a downward trend; but, as mentioned above, considering the current levels of demand and the potential requirements in the future, this fall in the demand seems to be improbable.

Nevertheless, with the technological advancements, the possibility of a new cheaper substitute in place of copper cannot be ignored. This has the capacity to pull down the demand for this metal to a great extent. Because of the wide range of uses of copper right from the household to the industrial purposes, there is a probability that a new cheaper alternative in place of copper can be discovered. This will bring down the demand for copper and will in turn have a negative effect on investments in terms of lesser and lesser returns.

So taking into considerations all these possibilities, is it sensible enough to invest in a Copper ETF? A public view would be yes taking into account the level of demand for this metal and besides a cheaper alternative will not have the capacity to drastically substitute the use of copper everywhere. If one still has doubts and are not sure of investing in copper ETFs, there are a few other options that can be given a thought. There are a few ETFs available that give a choice of dual metals. For instance there are options such as copper/aluminium, copper/gold and a few more. These should be considered in a diversified portfolio that always carries lesser risk.

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