Investors are salivating at the prospect of a physical aluminum exchange traded fund (ETF), aluminum producers have said they’re in favor of such a fund and there’s a race to be first to market with one. So, where is it?
- The chief executive of Alcoa (NYSE: AA) says he’s had talks with ETF sponsors about supplying aluminum for physically-backed funds, reports Murray Coleman for Barron’s.
- ETF Securities and Deutsche Bank have also expressed an interest in physically-backed base metals funds that would give exposure to aluminum, copper, lead, nickel, tin and zinc. [Aluminum ETF: Supply vs. Demand.]
- Glencore International, a Swiss commodity supplier, and Credit Suisse Group have also had a physical aluminum ETF in development.
- But, wait…there’s more. Russian producer Rusal has also said it’s looking at an ETF and may even supply it. [Would-Be Aluminum ETF May Have Supplier.]
With all this interest, it’s natural to think that a fund is going to hit the scene sooner rather than later. And when it does, it could well arrive at a heady time for the aluminum market.
Aluminum prices in China, the world’s largest producer and consumer, have gained 17% so far on heavy demand and diminishing supplies, explains Bloomberg BusinessWeek. What’s more is that one-third of China’s production capacity of the metal has been hit by power curbs in the country. This could keep prices elevated for some time.
Rusal agrees with that forecast. The world’s largest aluminum company says prices this quarter will rise on stronger demand across Asia, which is experiencing the rise of a fast-growing middle class, Bloomberg says.
Aluminum uses vary from cars, cans and airplanes – all things a middle class citizen will demand at some point.
Lastly, a physically-backed aluminum ETF has the potential to send prices up by as much as 25% in some forecasts.
- iPath DJ-AIG Aluminum ETN (NYSEArca: JJU)
- iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM): Gives a small amount of exposure to aluminum producers.
Tisha Guerrero 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.