Copper, nickel and tin-backed ETPs launch in London
ETF Securities, which holds some of the world’s biggest ETPs backed by Precious Metals, created these new ETPs in response to market demand for a wider range of investment opportunities in industrial metals as dwindling inventories increase prices and investors seek shelter from increasing inflation and unstable currency markets. BlackRock Asset Management (BLK:NYSE) and investment firm JP Morgan (JPM:NYSE) are currently preparing to launch similar ETPs in New York in 2011.
In 2010, copper prices have risen 22% (yesterday reaching another all-time high of US$9,091 a metric ton, nickel has gone up 28% (currently $26,000 a ton) and tin has leaped 53% (hitting an all-time high of US$27,500 a metric ton in early November—and prices are expected to rise further as industrial and investment demand increases.
Falling industrial metal inventories are currently putting significant upward pressure on prices: the London Metal Exchange’s copper stockpile has decreased by 31 percent this year, its nickel inventory has declined 17 percent and its tin holdings have dipped 43 percent.
Yesterday’s new record copper price was partly due to predictions that the new copper ETP and its soon-to-be launched competitors will further squeeze the world’s copper supply. In October, Deutsche Bank forecast that the new copper ETFs could hold 300,000-400,000 tons of copper—an amount comparable to the LME’s current copper holdings of approximately 350,000 tons, as well as the worldwide copper supply deficit of approximately 363,000 tons in the first eight months of 2010.
ETF Securities’ copper, nickel and tin ETPs are backed by physical metal stockpiled in London Metal Exchange (LME) warehouses. They trade under the symbols PHCU for copper, PHNI for nickel and PHSN for tin. Investors can trade these ETPs as shares—meaning they have daily liquidity—which can be an attractive option compared to investing in commodity-index products or mutual funds which frequently rely on futures and require a long-term locking-up of investment capital.
Commerzbank AG forecasts that up to $10 billion could be invested in ETPs backed by industrial metals by the end of 2011 as investor sentiment about these new products is highly positive.
Next year, ETF Securities intends to expand its industrial metal-backed ETP offerings: earlier this week, it announced plans to launch ETPs backed by aluminum, lead and zinc in 2011. Credit Suisse Group also plans to introduce an aluminum-backed ETP in London next year.
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