By Taras Berezowsky
Physically backed industrial metal ETFs, and specifically the copper ETF, are back in the conversation -- namely as it relates to LME stocks and copper prices. A topic covered by MetalMiner consistently over the past few years has made it into one of Reuters' columnist Andy Home’s recent commentaries, in which he asks the fundamental question regarding copper ETFs: What is all the fuss about? This time, the question is in reference to JPMorgan’s and Blackrock iShares’ physical copper funds. (Check out MetalMiner’s take on that particular tidbit from last May.)
Of course, ETF Securities’ copper offering, the main physically backed copper ETF on the market, has been the only real source for speculation about how this type of fund affects the broader industrial market, and by extension, price. As Home indicated, ETF Securities' offering hit a peak last spring, with 6,875 tons of copper in the fund. (Read MetalMiner’s interview with ETFS' Will Rhind on that matter.)
So, with copper stocks in ETF funds representing only 0.8% of the total global LME copper inventory -- that's right, 1,950 of 249,025 tons -- what indeed is the big stink? Home’s take is that the size of each proposed ETF ("JPMorgan’s application envisages a fund holding up to 60,000 tonnes ... Blackrock’s iShares application, registered just days later in 2010, outdid that with a potential size of 120,000 tonnes") aims to target a new type of investor -- not your typical "man in the street," as he puts it. That investor would be U.S. pension funds, which are for the most part disallowed from playing with derivatives products.
Home’s conclusion states that "pension funds would probably be ... more long-term 'buy and hold' than short-term 'chop and change.' In which case, copper fabricators are probably right to be worried." We’ll stay tuned and make sure to see how it all plays out.