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In a letter sent to US securities trading authorities on Tuesday a US Senator attacked plans by JPMorgan and BlackRock to launch an exchange-traded fund backed by physical copper similar to the many precious metal ETFs already available to investors.
The letter by Senator Carl Levin, a Michigan democrat, follows similar complaints by US copper wire manufacturers in May and states this type of investment vehicle in copper – widely used in construction, communication and transport – would ““undoubtedly affect and increase the price of copper”” and make the market “more susceptible to squeezes and corners by speculators”.
Gold ETFs have been very supportive of the price and combined these funds now hold some 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.
Apart from JPMorgan and BlackRock, Credit Suisse/Glencore, Deutsche Bank, Citigroup and Goldman Sachs are all looking at copper ETFs. Goldman Sachs have already been tying up physical supply and last year signed an off-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.
Earlier in the year an entity took control of up to 90% of cash contracts and inventories on the LME and stock levels at the LME’s 600 warehouses around the world are already at historically low levels of 250,00 tonnes from 450,00o tonnes a year ago. 73,500 tonnes are also held in COMEX warehouses.
Levin calculates that JP Morgan and Blackrock’s ETFs could take another 183,000 tonnes off the market.
On Tuesday, the red metal reversed recent gains trading at $3.46 a pound in New York. Today’s price is a 22% drop from historic highs hit at the end of July last year of a shade under $4.49 a pound (more than $10,000 a tonne).
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.
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