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Storage costs would kill copper ETF: Abbott

Keywords: Tags  copper, ETF, LME, Martin Abbott, BlackRock, JPMorgan Chase, Mark Burton

SHANGHAI — The cost of storing physical copper relative to the price of metal eliminates the possibility of a successful physical copper exchange-traded fund, according to London Metal Exchange chief executive officer Martin Abbott.

Commenting on the likely effect of ETFs planned by the likes of JPMorgan Chase & Co. and BlackRock Inc., Abbott said he maintains the view that the costs of storage and other complications will make it difficult for the products to take off.

"In terms of the ETFs, there was actually a lot of nervousness about 18 months ago when ETFs were first announced," he told delegates at AMM sister publication Metal Bulletin’s copper conference during Cesco Asia Copper Week. "Our view then, which remains our view now, is that the cost of storing copper relative to price kills dead the notion of a successful ETF in copper."

The importance of premiums as a component of the value of physical copper could also cause complications for the construction of an efficient ETF, he added.

"If you’re an ETF and you hold warrants and you dispose of those warrants because someone’s liquidating, and they turn out to be premium warrants, how do you allocate the premium? You’ve just employed another pack of lawyers for another year to work that one out," Abbott said. "We just think it’s too complicated to really take off and become an influence on the market."

Copper also doesn’t hold the same attraction as gold for investors, such as the "tins-and-ammunition people," who hold the metal as a hedge against economic crises, he said.

Abbott’s comments followed Sucden Financial director Jeremy Goldwyn’s estimation that the ETFs proposed by BlackRock and JPMorgan will unlikely trigger a cascade of retail investment into the copper market.

"I’m not convinced that it would necessarily revolutionize people’s investment (in copper). It may be that institutional players will look at those products, although I suspect that the pricing of them won’t be too attractive, but I’m not necessarily convinced that it will introduce a whole new wave of retail investors (to the market)," he said. 

A version of this article was first published by AMM sister publication Metal Bulletin.

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