By Joe Salimando
Long rumored, the JP Morgan XF Physical Copper Trust Exchange-Traded Fund (ETF) came one step closer to reality in the past month.
Why might be important? It would, according to IndexUniverse.com, be the first ETF “to serve up exposure to the copper market through a physically backed portfolio.”
Note that the IndexUniverse.com article above includes information about currently available ETFs and Exchange-Traded Notes (ETNs). If considering investing, it’s important to investigate the differences between ETFs and ETNs.
Similar “physical” ETFs on gold (stock symbol GLD) and silver (symbol SLV), introduced in the first half of the past decade, revolutionized trading of these precious metal commodities. In some quarters, they are given credit for pushing higher the prices of gold and silver.
How could this impact the copper market? The physical nature of this ETF—if it is created—would require that JP Morgan to buy and store a set quantity of physical copper to back shares of the Copper Trust.
In other words, copper would be accumulated by the Copper Trust, and stored. So, for example, each time someone purchased 100 shares of this ETF, JP Morgan would be on the hook to buy an additional amount of copper and stick it in a warehouse. In theory, in a week in which there were net sales of copper, JP Morgan would have to shed some of its inventory.
IMAGE 1
Above: Holdings of gold and silver ETFs are responsible for buying these metals—essentially taking the volumes of each metal shown in the graphics off of the market. Will the same thing happen with copper?
ETFs are similar to mutual funds in some ways. When there is buying demand for the shares of an ETF, generally speaking, more shares are created. So if there were, for instance, 150,000 shares in the Copper Trust available on September 1, and more market demand for another 15,000 shares became apparent, the Copper Trust would create another 15,000 shares.
For people in the electrical industry, this would mean that, if the Copper Trust ETF is created and if it attracts buyers, it would purchase additional amounts of copper and place them in a warehouse. That would remove some as-yet-unknowable amount of copper from the market. Meaning what’s in the Morgan warehouse would not be available for wire/cable manufacture.
Disclaimer: Salimando has been an investor in the gold and silver ETFs mentioned above since their inception.
Tagged with tED