Copper’s Strength draws Multiple ETF’s

By Leia Michele Toovey- Exclusive to Copper Investing News

Copper reached a 27-month high on Monday, as the U.S. dollar hit a 15-year low against the Yen, increasing the red metal’s appeal to holders of international currencies. The weakness in the dollar came as a Federal Reserve official reiterated a second round of economic stimulus was required, resurrecting the sentiment that the dollar would witness further downside.

Early Tuesday, copper’s rally was snapped, as the dollar reversed some of its losses. The metal for three-month delivery fell as much as 0.5 percent to $8,472 a metric tonne. Yesterday, copper touched $8,549 a tonne. However, by the end of the day, copper prices rose in New York recovered, on the back of extremely tight supply/demand fundamentals. Inventories monitored by the London Metal Exchange have dropped to the lowest level in a year, and analysts are already predicting a global shortfall next year.

The Greenback was bolstered by The Conference Board’s announcement that  its U.S. consumer- confidence index increased to 50.2 in October from a revised 48.6, a seven-month low, in September, topping analyst’s estimates.

Over the weekend, JP Morgan officially filed a preliminary prospectus with the SEC for a copper ETF. Rumours have been circulating over the past months that one of the big financial firms would start a copper ETF to capitalize on the metals recent Bull Run. According to the filing, JPMorgan will link up with  ETF Securities. While a copper ETF will allow JP Morgan to offer its clients exposure to copper, analysts are concerned about how much the ETF may artificially inflate copper’s price.  For the ETF, JP Morgan will hold Grade A copper in Physical form, and the ETF shares will be priced to correspond to the value of one one-hundredth of  a metric tonne of copper.

Considering the already tight stockpiles, analysts project a physical commodity backed ETF could further exacerbate the projected short fall in physical copper and send prices even higher.  On the contrary, if investors liquidate their holdings in the copper ETF, these physical supplies could flood the market. In sum, an ETF has the potential to introduce some volatility to the market. Because ETF holders do not actually need the copper they purchase, it is easy for them to walk away from their holdings.  In the end, who suffers, is holders who actually need the copper. JPMorgan’s ETF, which according to the preliminary plan would list on the New York Stock Exchange, still requires regulatory approval from the SEC.

JP Morgan’s may have been the first to make a move on a copper ETF, however, within a day that JP Morgan’s plan became public,  BlackRock Asset Management Inc., the world’s biggest money manager, announced that it would also introduce an exchange-traded product backed by copper.  BlackRock will sponsor the  iShares Copper Trust, which will each represent 10 kilograms of the metal. The price of iShares Copper Trust shares will be based on settlement prices of the London Metal Exchange, and it will be backed by real copper inventories stored in to be determined warehouses.

Commenting on the potential market influence  of copper ETF’s one analyst at Bank of America Merrill Lynch added  “There are several copper ETFs in the pipeline and if they go live, depending on their exact set-up and success, they could have an impact” on prices, stockpiles and premiums for physical metal, Currently, there are eight physically-backed commodity funds, including three focused on gold, two on silver, and one each on palladium and platinum. Before the recession hit, there was molybdenum ETF, however, the tough economic times forced its liquidation.

Company News

Copper miner and railroad operator Grupo Mexico’s is expected to announce a staggering 38 percent jump in third-quarter profit  as copper sales increased from the incorporation of U.S.-unit Asarco and prices for the red metal rose. It is anticipated that Grupo Mexico will report third-quarter net profit of $394.5 million, compared with $286 million in the same July-September period a year ago.

Freeport-McMoRan Copper & Gold (NYSE:FCX), the world’s largest publicly traded copper company was upgraded by Argus Research from “Hold” to “Buy” and given a $113 per share price target. The upgrade was a direct result of the firm’s recent decision to increase production, restart certain mining operations, and to be on the look-out for valuable acquisitions.

With help from Assistant Editor Vivien Diniz