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 Bulletins 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
"If youre an ETF and you
hold warrants and you dispose of those warrants because
someones liquidating, and they turn out to be premium
warrants, how do you allocate the premium? Youve just
employed another pack of lawyers for another year to work that
one out," Abbott said. "We just think its too complicated
to really take off and become an influence on the market."
Copper also doesnt 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.
Abbotts comments followed
Sucden Financial director Jeremy Goldwyns estimation that
the ETFs proposed by BlackRock and JPMorgan will unlikely
trigger a cascade of retail investment into the copper
"Im not convinced that it
would necessarily revolutionize peoples investment (in
copper). It may be that institutional players will look at
those products, although I suspect that the pricing of them
wont be too attractive, but Im 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.