Much Ado About Copper

The first exchange-traded product to be physically backed by the red metal was launched on the LSE last Friday, but is all the hype warranted?

Ben Johnson 15 December, 2010 | 4:40PM
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Seeing Red
Just over two months since confirming its plans to launch exchange-traded products (ETPs) physically-backed by industrial metals, ETF Securities has brought its ETFS Physical Copper (PHCU), Physical Nickel (PHNI), and Physical Tin (PHSN) securities to the London Stock Exchange. These products take the form of transferable securities which are ultimately backed by their relevant physical metals. Ownership of the metals is established through London Metal Exchange (LME) warrants or warehouse receipts, which serve as a claim on physical metal (which conforms to LME standards) stored in LME-approved warehouses.

Fundamentally Sound
Much of the excitement around the launch of the world's first physically-backed copper ETP can be attributed to the fact that the fundamentals of the copper market are presently very favourable for suppliers of the red metal. In its most recent market forecast, issued in October, the International Copper Study Group projected a 435,000 tonne deficit in refined copper supply in 2011. This industry-watching NGO anticipates that global demand for refined copper will rise 4.5% in 2011, driven in large part by an anticipated 6% increase in Chinese industrial usage. Meanwhile, refined supplies are expected to rise by a mere 1%.

Expectations are consequently running high for the copper price, which recently touched a new all-time high. Many banks have put copper at the top of their trade pick lists for 2011. In its recently issued global outlook for 2011, Barclays Capital stated, "Copper and tin are set to hit further all-time highs next year, making them our picks from the base metals complex."

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About Author

Ben Johnson

Ben Johnson  is director of passive funds research at Morningstar.