For more than two years now, issuers like JP Morgan and iShares have been battling to bring physically-backed copper ETFs to the markets. At first glance, it seems like a solid idea; after all, GLD and SLV are two of the most popular ETFs in the world, and each of them offers physical exposure to their respective metals. Yet the proposed copper products remain in the doldrums, as the red tape and roadblocks seem to be endless for these proposed products [for more copper news and analysis subscribe to our free newsletter].
A recent SEC study stated that there was little connection between the flows of commodity-based securities and the prices of the commodities themselves. But a copper users group including AmRod Corp, Southwire Co and Encore Wire Corp, have come out against the study. This group, represented by Vandenberg & Feliu, have stated that the proposed funds would disrupt metal supplies as well as increase prices. The group went on to call the SEC study “inaccurate and incomplete” in their opposition to these products.
Problems Continue to Mount
Aside from the backlash against these products, there also comes the question of storage. Physically-backed precious metals products make sense because of the high value-to-weight ratios of these commodities. But storing cheap metals like aluminum and copper could bring in considerable costs for the issuer, leading many to wonder if these products are feasible in the first place [see also For Long-Term Investors: The Cheapest ETF for Every Commodity].
Even if the proposed physically-backed products were able to slash those fees, the effective expense ratio of these proposed products could set new records for the ETF industry. It’s important to keep in mind that storage costs are often a primary reason for contango in futures markets, as longer-dated prices include additional months of storage.
With two years and counting for these products to walk through SEC hoops, it seems more and more likely that they will never see the light of day, at least in their current form. It may just be that physically-backed industrial metals products don’t make sense and investors are better off with futures products. Keep an eye out for any developments on this front, but don’t expect it to be a fast-moving process.
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Disclosure: No positions at time of writing.
[...] This article was originally written by Jared Cummans, and posted on CommodityHQ. [...]
[...] in total assets. But the options do not end there, as issuers have continued to innovate with new and exciting products to give investors multiple ways to play their precious metal. Leveraged products have been among [...]
[...] in total assets. But the options do not end there, as issuers have continued to innovate with new and exciting products to give investors multiple ways to play their precious metal. Leveraged products have been among [...]
[...] in total assets. But the options do not end there, as issuers have continued to innovate with new and exciting products to give investors multiple ways to play their precious metal. Leveraged products have been among [...]
[...] iPath Pure Beta Copper (NYSEARCA:CUPM): With a market capitalization of $2.7 million and a 0.75% yearly fee, this ETN is a distant second to JJC in popularity, but uses a number of different expiration dates instead of a single futures contract with a single expiration date, like many commodity ETFs [see also Physical Copper ETFs? Not So Fast]. [...]
[...] iPath Pure Beta Copper ETN (CUPM): With a market capitalization of $2.7 million and a 0.75% yearly fee, this ETN is a distant second to JJC in popularity, but uses a number of different expiration dates instead of a single futures contract with a single expiration date, like many commodity ETFs [see also Physical Copper ETFs? Not So Fast]. [...]