JP Morgan (NYSE: JPM) and BlackRock (NYSE: BLK) have filed applications with the Securities and Exchange Commission to launch the first physically-backed copper exchange traded funds in the U.S.
The two firms are also telling U.S. regulators that copper supply outstripped demand last year, according to a report.
According to JP Morgan’s previous prospectus, the copper market is experiencing problems from the supply side and higher demand from the emerging markets, reports Tatyana Shumsky for The Wall Street Journal.
However, according to the BlackRock prospectus, “historically (based on approximately 60 years of data), the tonnage of mined copper is less than total demand for refined copper.”
In filings, JP Morgan and BlackRock confirmed that copper production in 2010 outpaced demand by more than 2 million tons. In contrast, most commodity strategists project a supply shortfall for the year. [Copper ETFs Fall on Recession Worries]
Justin Lennon, a metals analyst with Mitsui Bussan Commodities, attributes the simultaneous deficit and surplus outlook to economic forecasts that only account for production and demand for the calendar year, which may exclude excess stores carried over.
“The (current) oversupply is a consequence of the economic conditions of the last three years, and current and future deficits will be strong enough to digest that oversupply,” Lennon commented. At least one million tons of the surplus “isn’t available for sale, it has to be part of the ebb and flow of moving copper down the line to the ultimate end product.”