BarCap doubts hot market for base metal ETPs

By Barani Krishnan

NEW YORK, Dec 9 (BestGrowthStock) – 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.
(Reporting by Barani Krishnan; editing by Jim Marshall)

BarCap doubts hot market for base metal ETPs