The Price Impact of an Aluminum ETF
July 10th 2010 at 1:00pm by Tom Lydon
Aluminum traders may soon get a chance to trade the metal through an exchange traded fund (ETF). Some wonder what kind of impact such a fund would have on the broader aluminum market.
History has shown that the launch of metal ETFs has had a positive effect on the price of the underlying metal that the fund tracks, remarks Karvy Global for TheStreet. Some analysts predict that aluminum prices may gain 25% above current levels.
Greg Wittbecker, director of material management at Alcoa (NYSE: AA), has commented that the top banks were moving into the physical aluminum market, which hinted at the creation of a related ETF.
Oleg Deripaska, the CEO of UC Rusal, the world’s biggest aluminum producer, stated that his company would supply the aluminum an ETF would hold. No word has yet to be provided on what fund provider would launch the fund. UC Rusal projects aluminum prices may hit $2,400 per ton by year end. [Is an Aluminum ETF Imminent?]
A new aluminum ETF may mitigate fears of aluminum well-being as diminishing prices have forced producers to reduce supply.
Inventory levels have fallen in recent weeks. Deutsche Bank noted that “risk appetite appears to be improving, and it’s anyone’s guess when it will reverse.” However, Deutsche Bank expects that “prices are likely to remain under pressure over the next couple pf months at least.” Aluminum prices currently stands at just below $2,000 a ton. [Copper ETFs Spike, But Will It Stick?]
For more information on aluminum, visit our aluminum category.
While an aluminum ETF is still unavailable, investors may play the metal through the ETN iPath DJ-AIG Aluminum ETN (NYSEArca: JJU), which tracks futures. You can also get exposure to aluminum producers in iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM).
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.