Exchange traded funds backed by holdings of physical metals have proven popular with investors. Just take a look at the rapid asset growth in ETFs backed by physical holdings of gold, palladium, platinum and silver. Next up on the list of physical metal ETFs may be aluminum. According to a Citigroup client note issued on Tuesday, the creation of a new aluminum ETF or ETFs could help aluminum prices spike by $500 per metric ton. That forecast is based on holdings of 1.4 million tons, according to Bloomberg News.
The Bloomberg report goes on to say that Russia's United Co. Rusal, the world's largest aluminum producer, has been in talks with banks to supply physical aluminum to back new ETFs. The company said in late April that at least three aluminum ETFs are “technically” ready to come to market, though the Citigroup note said that financing and warehousing costs pose obstacles to the creation of aluminum ETFs.
The Bloomberg report did not mention potential issuers for a new aluminum ETF or where the ETF would trade. It would not be surprising to see the first aluminum ETF trade in London before a comparable ETF is made available to U.S. investors because the London Mercantile Exchange actively tracks aluminum stockpiles in warehouses. Either way, the creation of an aluminum ETF would be a boon for prices of the underlying commodity, which are down almost 7% this year.
Disclosure: No positions