London, 20 September 2010

UK-based ETF Securities declined on Monday to comment on talk that it is planning to soon launch a physically backed copper exchange traded product (ETP). Traders said news last week that ETF Securities had an account with LMEsword -- the London Metal Exchange's electronic transfer system for stock warrants -- had fueled talk of physically backed ETPs for metals such as copper and nickel.

"As company policy, ETF Securities does not comment on current or future product development initiatives," ETF Securities told Reuters.

"But we are always interested in exploring and evaluating new possibilities that are consistent with our firm's positioning as a specialist exchange traded product provider."

LMEsword facilitates transfer of ownership of LME stock warrants and reporting. Exchange traded commodity products are listed on exchanges such as the London Stock Exchange, making commodity exposure easier for institutional investors such as pension funds, which do not have mandates to use futures markets.

That is why others companies have also floated the idea. Talk of a copper ETF has been doing the rounds for more than a year, but analysts say barriers to a successful launch include a lack of excess material.

"It may just be chat ahead of LME week next month or maybe just investor idle speculation following on from even stronger rumours that two investment banks ... are looking into a physical aluminium ETF for the end of 2010," Bernstein Research said in a note.

"The principal point we want to make is what would a $2bn physical copper ETF translate into in tonnage terms? At current copper prices the answer is around 266kt."

"And the key difference between this and aluminium is the difficulty in sourcing the metal. We think that a copper ETF could have a material influence on the supply/demand balances in the copper market and subsequently the copper price."

Analysts say an aluminium ETP is much more likely as that market expects to see a large surplus this year. A physically-backed aluminium ETP is expected to be launched by the world's biggest commodity trader Glencore and Swiss-based investment bank Credit Suisse by the end of this year on a Swiss exchange.

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By Pratima Desai, Reuters - for Commodities Now