JP Morgan Readies First Physical Copper ETF

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 |  Includes: CPER, CUPM, JJC
by: Tom Lydon

On the backdrop of tightening supply in the copper market and uncertain outlook from a potential eurozone recession and slowdown in China, JP Morgan (JPM) is moving closer to listing what could be the first physically-backed copper exchange traded fund.

According to a Securities and Exchange Commission filing, the JPM XF Physical Copper Trust will try to reflect the performance of Physical Copper Grade A.

In its original filing in October 2010, JP Morgan stated that it would store up to 61,800 tons of copper based on a price of $8,8086.75 per ton, report Melanie Burton and Chris Kelly for Reuters. The filing states that the physical copper will be stored in any of the globally located Henry Bath Group warehouses.

According to a NYSE spokesperson, the J.P. Morgan copper ETF could come to market as early as June this year.

JP Morgan, BlackRock and ETF Securities initially filed for copper-backed ETFs in late 2010, which helped lift copper prices above $10,000 a ton in February 2011. However, copper prices have declined as the demand from the physically-backed ETFs never materialized.

Copper prices remain steady above $8,000 a ton Tuesday, coming off a three-month low Monday, according to another Reuters report. Copper prices are up around 5% year-to-date.

"What we see in copper prices today is just a recovery move which could last a few days," Daniel Briesemann, analyst at Commerzbank, said in the article. "But given that the debt crisis in the euro zone seems to be back in focus and given the higher risk aversion and growing uncertainty this is likely to only be a temporary move and we still expect prices might go down again very quickly."

Meanwhile, analysts also expect the global copper market to drop to a 180,000 ton deficit this year. Rio Tinto has reported worse-than-expected declines in iron ore, copper and coal production in the first quarter. Chilean state copper miner Codelco also projects tighter supplies.

In the meantime, investors may opt for futures-based funds, including United States Copper ETF (CPER), iPath Pure Beta Copper ETN (CUPM) and the iPath Dow Jones UBS-Copper Total Return ETN (JJC).

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.