Decoding ETFs Activity in Base Metals

by: World Market Pulse

Even as Copper prices fell on Tuesday after the rise of the US dollar, retreating from a 27-month peak hit earlier in the session and tracking choppy currency trading ahead of a key Federal Reserve meeting next week, the launch of new physically backed exchange-traded products [ETPs] in industrial metals is dominating base metals market and generating a lot of speculation about their effect on prices and demand.

Tight Supplies Helping Copper: Supply shortages have been a major factor behind the surge in copper prices due to a combination of falling ore grades in major producing nations, labour problems and project delays. Copper also is benefiting from a tightening market as stocks in LME warehouses have tumbled more than 30 percent since the middle of February. The latest data showed LME stocks down 475 MT to 371,275 MT, having fallen from seven-year highs above 555,000 in late February.

Market Trends: Three-month copper on the London Metal Exchange traded at $8,457.75 a tonne at 0923 GMT from $8,518 a tonne at the close on Monday. Earlier dollar weakness drove copper to $8,554 a tonne, it’s highest since July 2008.

Aluminum Output Forecast Grim: According to analysts at the trading firm Marubeni Corp, The global surplus in primary aluminum will likely narrow in 2011 as demand growth for the metal from emerging countries such as India and Brazil plays a bigger role. China has meanwhile announced that it would be producing 16 million MT of primary aluminum this year, a cut from a previous forecast of 17 million MT.

Market Trends: Given the outlook for a narrower global surplus on solid demand, aluminum prices on the London Metal Exchange [LME] may test the high of $2,800 per tonne in 2011, while a downside correction may occur in January-March with a floor around $2,200 per MT.

Base Metals ETFs Activity: JPMorgan Commodity ETF Services registered to launch an exchange-traded product [ETP] for copper in a filing late last week with U.S. regulator the Securities and Exchange Commission. Earlier this month, UK-based ETF Securities said it would launch ETPs for base metals, while producer RUSAL said its aluminium-supplied ETF would hit the market within the next three months.

Copper ETFs

ISE Global Copper Index Fund Profile (NASDAQ:CU): The index is a modified linear weighted index designed to track public companies that are active in the copper mining industry based on analysis of revenue derived from the sale of copper.

Expense Ratio: 0.70%

iPath DJ-UBS Copper Total Return Sub-IndexSM ETN (NYSEARCA:JJC): The index includes the contract in the Dow Jones-UBS Commodity Index Total Return that relates to a single commodity, copper (currently the Copper High Grade futures contract traded on the COMEX).

Expense Ratio: 0.75%

PowerShares DB Base Metals Fund (NYSEARCA:DBB):
The Index is a rules-based index composed of futures contracts on some of the most liquid and widely used base metals - aluminum, zinc and copper (grade A). The index is intended to reflect the performance of the industrial metals sector.

Expense Ratio: 0.75%

Aluminium And Other Base Metal ETFs

Path DJ-UBS Industrial Metals Total Return Sub-Index ETN (NYSEARCA:JJM): The Index is currently composed of four futures contracts on industrial metals, three of which (aluminum, nickel and zinc) are traded on the London Metal Exchange and the other of which (copper) is traded on the COMEX division of the New York Mercantile Exchange.

Expense Ratio: 0.75%

ELEMENTS Rogers Intl Commodity Metal ETN (NYSEARCA:RJZ): The Index represents the value of a basket of 10 metals commodity futures contracts and is a sub-index of the Rogers International Commodity Index.

Expense Ratio: 0.75%

iPath DJ-UBS Nickel Total Return Sub-IndexSM ETN (NYSEARCA:JJN): The index includes the contract in the Dow Jones-UBS Commodity Index Total Return that relates to a single commodity.

Expense Ratio: 0.75%

iPath Dow Jones-UBS Aluminum Total Return Sub-IndexSM ETN (NYSEARCA:JJU): The Dow Jones-UBS Aluminum Subindex Total Return is a single-commodity sub-index currently consisting of one futures contract on the commodity of aluminum.

Expense Ratio: 0.75%

E-TRACS UBS Bloomberg CMCI Ind Metal ETN (NYSEARCA:UBM): The CMCI Industrial Metals TR measures the collateralized returns from a basket of five futures contracts representing the industrial metals sector. The commodity futures contracts are diversified across five constant maturities from three months up to three years.

Expense Ratio: 0.65%

Base Metals Projections: World Market Pulse analysts believe that new investor interest in products such as commodities exchange-traded funds will also boost base metals demand and prices from 2010 until 2015. Analysts at consultancy CRU Group are also bullish as evident from its 2014 against 2010 commodity price performance forecast thermometer, CRU sees gains of 15 percent or more for copper and tin. During this same period, the group also sees 0-15 percent gains for lead, zinc and aluminium, and 0-10 percent for nickel.

Author's Disclosure: No Positions