UPDATE 1-Deutsche Declines Comment on Talk of Aluminium ETF Plan

LONDON, Aug. 2 -- Deutsche Bank (DBKGn.DE: Quote) on Friday declined to comment on market talk that it will launch a physically-backed aluminium exchange traded product (ETP) by the end of this year.

Metal traders told Reuters this week that the German Bank was preparing to follow the world's top aluminium producer, Russia's UC RUSAL (0486.HK: Quote), which has said is considering an aluminium ETP.

"People have been talking about aluminium ETFS (exchange traded funds) for a while now, Deutsche Bank is a name that is being mentioned more often," a London-based metal trader said. "We heard it will be this year, I don't know any other detail."

The market is also talking about the potential launch of a physically-backed aluminium ETP by the world's biggest commodity trader Glencore International and investment bank Credit Suisse.

Analysts say an aluminium ETP would probably be used mostly by investors looking for short term exposure to base metals.

A key question is how can an ETP make sense in a market expected to see a large surplus, possibly up to 1.2 million tonnes, this year?

The answer, analysts say, is that an ETP is possible only because the market is oversupplied. A physically-backed copper ETP would be difficult as the market is expected to see a very small surplus, possibly even a small deficit, this year.

A copper ETP would face strong opposition from consumers, much like the situation with autocatalyst material platinum in previous years.

The copper market is estimated at around 19 million tonnes this year and the aluminium markets at about 37 million tonnes.

Aluminium is a key metal for the packaging, transport and construction industries. The benchmark aluminium price CMAL3 on the London Metal Exchange was at $2,104 a tonne at 0935 GMT from Thursday's $2,093 a tonne.

Current prices are about 15 percent above the level seen in early June when markets feared the debt crisis in the euro zone had the potential to triggger sovereign default.