Wednesday, May 2, 2012

The World Cries Out for Industrial Metals ETF's, JPMorgan et al Hears Those Cries

From Institutional Investor:

New ETFs Backed by Industrial Metals

Not all that glitters is gold. There’s another family of metals that are precious for their industrial uses – most notably, copper, where demand will once again exceed supply this year for the third consecutive year, due largely to demand from China. The International Copper Study Group (ICSG), in its annual forecast issued in April, is projecting a global shortage of about 240,000 metric tons over the next twelve months.

And investors in the U.S. might soon have a new way of playing the copper market, if several proposed ETFs, backed by the physical metal and stored in warehouses, are approved by the SEC. The concept isn’t completely new. There are physical metal ETFs for the four precious metals – gold, silver, platinum, and palladium. But copper could be the first physical industrial metal in the ETF market in the U.S.

The industry is betting that J.P. Morgan Commodity ETF Services, which was the first to file for a physical copper ETF with the SEC in 2010, will also be the first to hit the market, possibly by June. Neither J.P. Morgan nor the NYSE will comment, but in early April, the NYSE made its own filing with the SEC, to list the new ETF on its Arca electronic trading platform, fueling speculation that SEC approval was near.

“This is a big move,” says Morningstar ETF analyst Abe Bailin in Chicago. “It’s not just another frivolous, ‘me too’ type of product. For the first time, in the U.S. market, investors are going to be able to get exposure to physical copper, and that’s a ground-breaking thing,” he says, noting that it won’t be just accredited investors, but “Joe Six-Pack” as well.

Blackrock’s iShares also filed for a physical copper ETF with the SEC in September of 2011, and since it’s in the quiet period, an iShares spokesperson said the firm wouldn’t comment on its proposed offering, either.

But perhaps most interestingly, ETF Securities, based in London, has filed with the SEC for a full suite of seven physical industrial metal ETFs in the U.S., including not just copper, but also aluminum, nickel, tin, lead, and zinc, and a basket of all six, and the firm already has experience with physical industrial metal ETFs in the U.K., where they launched the six individual metal ETFs in the latter part of 2010 and the first part of 2011, says Scott Thompson, the Co-Head of European Sales for ETF Securities (U.K.) Limited in London. In the U.K., the firm has yet to launch its physical basket ETF. That, he says, is the “last piece of the jigsaw,” where the firm is “still working on the logistics” of moving all the metals into a warehouse facility. In the U.K., ETF Securities also offers the more traditional futures-based industrial metal ETFs, including some index-based baskets, but “many investors prefer owning real assets,” he says.

That’s because the price isn’t subject to the supply and demand vagaries that sometimes afflict the futures market. (More on that in a second.....MORE