The U.S. Donald Trump administration has announced tariffs on copper, causing copper prices to fluctuate, while significant revenue differences have emerged within domestic exchange-traded funds (ETFs) and exchange-traded notes (ETNs) based on copper. Even for the same copper, the revenue differences throughout the year have widened by nearly 25 percentage points depending on which market's price is being tracked.
According to the Korea Exchange on the 10th, the year-to-date revenue for the 'KODEX Copper Futures (H)' ETF, based on the previous day's closing price, is 33.02%. In contrast, the 'TIGER Physical Copper' ETF only rose 7.46% during the same period. Although there is a difference due to the underlying indices being copper futures and physical copper, the copper price standard was decisive. KODEX Copper Futures (H) is based on prices from the New York Mercantile Exchange (COMEX), while TIGER Physical Copper is based on prices from the London Metal Exchange (LME).
President Trump has decided to impose a 50% tariff on copper starting August 1, based on Section 232 of the Trade Expansion Act, which allows for restrictions on imports of items that threaten national security or the imposition of high tariffs. This level exceeds the expected tariff rate of 25% in the market.
While President Trump announced the tariffs on copper, copper prices have sharply risen on COMEX. This is because the U.S. has a high dependence on copper imports. Last year, more than half of the 1.6 million tons of copper demand in the U.S. was imported from abroad, accounting for 53% (860,000 tons). In this situation, if the U.S. raises tariffs and increases import thresholds, the copper supply and demand within the U.S. could become tight, which would be a factor stimulating prices.
The copper prices on COMEX, reflecting the U.S. market situation, and those on LME, which serve as international standards, have also diverged. The copper spread (price difference) between COMEX and LME has been around $200 per ton for the past 10 years, but it broke through $1,000 per ton in January and has recently skyrocketed to over $2,600 per ton. This is the reason why the revenue based on copper prices from the COMEX market is better.
However, investors in ETFs and ETNs that follow COMEX copper futures should be mindful of rollover. This is because rollover expenses are reflected in the ETF prices. Rollover refers to replacing an expiring futures contract with another contract that has a later expiration date.
The issue is that the current COMEX copper futures prices are in a 'contango' state, where longer-dated futures are more expensive than those closer to expiration. This means that one must liquidate existing positions bought cheaply during rollover and set new positions at higher prices. If copper futures prices on COMEX keep rising steadily, there won't be a problem, but if they falter, the burden may increase.
In the recent phase of a weak dollar, whether to hedge currency has also become a key variable affecting revenue. Until the previous day, the year-to-date revenues for 'Samsung Copper Futures ETN (H)' and 'Shinhan Copper Futures ETN (H)' were similar at 35.38% and 35.22%, respectively. In contrast, 'Hanwha Copper Futures ETN' was relatively low at 26.06%.
All three products are based on COMEX copper futures prices. However, the two ETNs with (H) attached have hedged against currency risk, making them free from exchange rate effects; on the other hand, the Hanwha copper futures ETN has limited its increase due to the weak dollar.
The Trump administration is building tariff barriers due to the trade deficit while also inducing a weak dollar. The dollar index, which reflects the dollar's value against the currencies of six major countries, peaked at 109.75 in February and is now below 97. The exchange rate of the Korean won against the U.S. dollar approached 1,490 won in April but is now hovering around 1,360 to 1,370 won. If the weak dollar continues, hedge products could become more advantageous.
If considering long-term investments, it is also important to note that ETNs, unlike ETFs, have maturity dates. ETNs are redeemed based on the reference price at maturity. The Samsung Copper Futures ETN (H) and Hanwha Copper Futures ETN have a maturity date of October 26, 2026, which is more than a year away. The Shinhan Copper Futures ETN (H) has a maturity date of February 26, 2026, which is relatively close.
Experts forecast that copper prices will show a long-term upward trend. Demand for copper is expected to remain steady as it is a key raw material for power and semiconductors, while major copper-producing countries, including Chile, will find it increasingly difficult to adequately supply due to water shortages.
However, in the short term, opinions suggest that due to tariff issues, copper prices are distorted, making caution necessary for investors. Hong Seong-gi, a researcher at LS SECURITIES, noted, 'The supply shortage in the copper market for the first half of this year is estimated to be due to demand from imports before the imposition of U.S. tariffs,' and added, 'After the tariffs are imposed, the pre-import effect is expected to diminish, making adjustments based mainly on LME inevitable.'