Copper ETFs: The horror! The horror!
FT.com reports on a letter to US securities trading authorities from manufacturers of copper wire attacking plans by investment bank JPMorgan to launch an exchange-traded fund backed by physical copper similar to the many precious metal ETFs already available to investors.
The letter to the SEC states this type of investment vehicle in copper – widely used in construction, communication and transport – would “grossly and artificially inflate prices” and “wreak havoc on the US and global economy”.
Gold ETFs have been very supportive of the price and combined these funds now hold almost 2,500 tonnes of the precious metal, but given copper's essential role in the global economy investors hoarding physical supply would have a different dynamic altogether.
“Fundamentally copper is tight anyway,” says David Thurtell, metals strategist at Citigroup. “Add an ETF to that and it becomes explosive.”
The FT reports apart from JPMorgan, Credit Suisse/Glencore, Deutsche Bank, Citigroup and Goldman Sachs in partnership with BlackRock are all looking at copper ETFs. Goldman Sachs have already been tying up physical supply and last year signed an take agreement with Spanish miner Emed.
Copper stockpiles and global imbalances of supply have caught the attention of industry observers with some saying that there are rogue traders operating in the market and that prices are being distorted by dominant players.
The red metal fell to a fresh 4-month low of $3.42 a pound in New York trading on Wednesday following a a broad commodities sell-off over mounting worries about the global macro-economic outlook.
Today's price is a more than 20% drop from historic highs hit at the end of July last year of a shade under $4.49 a pound.
2011 saw dramatic price collapses for copper. From the record high in July the metal plunged to $3.07 at the beginning of October, a 31% drop in little over two months. In September 2011 alone, the price dropped 26%, losing over $1/pound during the month.
Read more about the changing market for copper:
- Vast new copper supplies depressing prices? Don't worry, it's never going to happen
- Copper price: There's something happening here. What it is ain't exactly clear
- Red mettle: Has China cornered the copper market?
He cried in a whisper at some image, at some vision—he cried out twice, a cry that was no more than a breath—"The horror! The horror!" — Joseph Conrad, Heart of Darkness