While fabricators are still up in arms against a physical copper exchange traded fund, BlackRock’s iShares recently received SEC approval for an ETF backed by metal, rather than copper futures contracts like existing products.
The Securities and Exchange Commission approved a proposed rule change to list and trade iShares Copper Trust, Reuters reports.
JP Morgan has proposed a similar ETF, but it has been delayed by industry objections. A group of fabricators argue that the fund would “obviously drive up the price of copper available for immediate delivery and create shortages of such supply,” and remove as much as 30% of available copper for immediate delivery. [Proposed Physical Copper ETFs Face Resistance from Fabricators]
Physically backed copper ETFs would provide retail and institutional investors easier access to copper.
“Some of the big U.S. institutions looking at inflation hedges may decide to invest … (but) these ETFSswould have to be hugely popular from day one to make a dent in a surplus,” analyst Robin Bhar of Societe Generale, said in the article.
Analysts do not expect the funds to have a large impact on the copper market as initial purchases could be initially slow.
“It is paving ground for (an) artificial spike in copper prices once the proper macro backdrop is in place,” Dominic Schnider, an analyst at UBS Wealth Management, said in the article. “But right now we are only looking at copper strength related to the cyclical uptick in demand, and I am not sure if that will be enough to motivate investors.”
Moreover, the BlackRock copper ETF could hold up to 121,000 tonnes of copper guaranteed against its shares, and the JPMorgan fund could store about 62,000 tonnes. In comparison, the global market for refined copper is expected to hit a 281,000 tonne surplus for 2013 due to growing supply against low demand, according to the International Wrought Copper Council.
For more information on copper, visit our copper category.
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.