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BarCap Doubts Hot Market for Base Metal ETPs

Industry News 10:11:00AM Dec 10, 2010 Source:SMM

Dec. 10 -- Physically backed exchange-traded products for base metals are unlikely to draw the kind of investor money precious metal ETPs did as metals like copper are worth less to small investors than gold, a senior BarClays Capital researcher said on Thursday.

"Some people seem excited about physically backed base metals but I have to ask why?" Kevin Norrish, BarCap's director of commodities research in London, told Reuters on the sidelines of a BarClays commodities conference in New York.

"With gold, obviously you're worried about financial collapse and you want the physical gold. What are you going to do with 25,000 tonnes of copper? What's the attraction to investors, when there are so many nonphysically backed base metals ETPs out there for them?"

London-based ETF Securities said earlier this week it would launch the first physically backed exchange-traded products (ETP) for base metals from Friday, although markets are concerned such products could tip an already tight copper market into a larger deficit and distort prices. [ID:nLDE6A70YE]

"Investors are increasingly looking at hard assets as a way to hedge against growing concerns about sovereign risk, currency debasement and potential inflation," ETF Securities chairman Graham Tuckwell said, explaining the rationale for the new ETPs.

ETF Securities, which owns some of the world's largest exchange-traded products backed by precious metals, said it would initially offer products backed by physical copper PHCU.L, nickel PHNI.L and tin PHSN.L.

Next year, the company plans to launch aluminum, lead and zinc exchange traded contracts, along with a basket of such industrial metals offerings.

Canada's ScotiaMocatta, a unit of Bank of Nova Scotia (BNS.TO), was set to launch the world's first exchange-traded fund backed with physical copper earlier this year.

But the plan was put on hold in May as some prospective investors lost their nerve and failed to meet the fund's minimum C$100 million ($96.2 million) threshold. [ID:nN07202690]

Norrish said BarCap's research showed that financial products for base metals were underinvested, drawing less than $1 billion compared with the more than $90 billion capital attracted by the universe of precious metals ETPs.

"If it is cheaper to store base metals and that makes it more profitable to sell, then I can see the logic for a physically backed product. But as it is, storage is expensive."

Supply shortages have been a major factor behind the surge in copper prices in recent months, due to a combination of falling ore grades, labor problems and project delays. [ID:nLDE69B17Z]

Tight supplies lifted copper to a record high of $9,091 a tonne on the London Metal Exchange CMCU3 on Thursday. BarCap has a $9,950 target for a tonne of copper by the third quarter of 2011, with Norrish telling Thursday's conference that market could tip $10,000.

On Wednesday, copper stocks slipped 800 tonnes to 349,450 tonnes, having fallen from 6-1/2 year highs of 555,075 tonnes hit in mid-February.
 

Key Words:  copper   ETCs  ETF Securities   nickel 

BarCap Doubts Hot Market for Base Metal ETPs

Industry News 10:11:00AM Dec 10, 2010 Source:SMM

Dec. 10 -- Physically backed exchange-traded products for base metals are unlikely to draw the kind of investor money precious metal ETPs did as metals like copper are worth less to small investors than gold, a senior BarClays Capital researcher said on Thursday.

"Some people seem excited about physically backed base metals but I have to ask why?" Kevin Norrish, BarCap's director of commodities research in London, told Reuters on the sidelines of a BarClays commodities conference in New York.

"With gold, obviously you're worried about financial collapse and you want the physical gold. What are you going to do with 25,000 tonnes of copper? What's the attraction to investors, when there are so many nonphysically backed base metals ETPs out there for them?"

London-based ETF Securities said earlier this week it would launch the first physically backed exchange-traded products (ETP) for base metals from Friday, although markets are concerned such products could tip an already tight copper market into a larger deficit and distort prices. [ID:nLDE6A70YE]

"Investors are increasingly looking at hard assets as a way to hedge against growing concerns about sovereign risk, currency debasement and potential inflation," ETF Securities chairman Graham Tuckwell said, explaining the rationale for the new ETPs.

ETF Securities, which owns some of the world's largest exchange-traded products backed by precious metals, said it would initially offer products backed by physical copper PHCU.L, nickel PHNI.L and tin PHSN.L.

Next year, the company plans to launch aluminum, lead and zinc exchange traded contracts, along with a basket of such industrial metals offerings.

Canada's ScotiaMocatta, a unit of Bank of Nova Scotia (BNS.TO), was set to launch the world's first exchange-traded fund backed with physical copper earlier this year.

But the plan was put on hold in May as some prospective investors lost their nerve and failed to meet the fund's minimum C$100 million ($96.2 million) threshold. [ID:nN07202690]

Norrish said BarCap's research showed that financial products for base metals were underinvested, drawing less than $1 billion compared with the more than $90 billion capital attracted by the universe of precious metals ETPs.

"If it is cheaper to store base metals and that makes it more profitable to sell, then I can see the logic for a physically backed product. But as it is, storage is expensive."

Supply shortages have been a major factor behind the surge in copper prices in recent months, due to a combination of falling ore grades, labor problems and project delays. [ID:nLDE69B17Z]

Tight supplies lifted copper to a record high of $9,091 a tonne on the London Metal Exchange CMCU3 on Thursday. BarCap has a $9,950 target for a tonne of copper by the third quarter of 2011, with Norrish telling Thursday's conference that market could tip $10,000.

On Wednesday, copper stocks slipped 800 tonnes to 349,450 tonnes, having fallen from 6-1/2 year highs of 555,075 tonnes hit in mid-February.
 

Key Words:  copper   ETCs  ETF Securities   nickel