London, 13 October 2010

Antofagasta Minerals has been approached by investment banks to sell copper to back exchange-traded products, CEO Marcelo Awad said on Tuesday, in a sign of investor appetite for physical metal.

Awad said banks contacted the UK-listed company in late 2009 and early this year for a possible purchase, but did not say if Antofagasta sold them the copper. "We have been approached since the beginning of this year or late last year by a number of big investment banks that have been analysing this new business for a long time. I think this is taking shape," Awad told Reuters in an interview.

"If they are a player in the market and we have the possibility to sell, we can't say no. If we don't sell and another producer sells to them we can be left out of this new business."

Exchange traded commodity products have become popular with investors looking for exposure to physical metal that has rallied on expectations for tight supply. The instruments have proved popular in other markets because they are listed on exchanges and normally very liquid.

But the foray into ETPs for base metals has worried both consumers and producers, who say the products could add yet more volatility to a market already known for it. UK-based ETF Securities said on Monday it will introduce Antofagasta, considered an important player in the copper industry, fears ETPs could severely affect fundamentals as investor pile up physical copper during bullish cycles.

"We would rather have a steady market than this so-called fictitious market," he said. "I think they (ETPs) should be regulated very tightly."

Deutsche Bank said exchange-traded products backed by copper could hold 300,000 to 400,000 tonnes of metal, which is roughly 2.2 percent of global refined copper demand. Benchmark copper stood at $8,330 a tonne at 1754 GMT.

Barclays Capital said in a research note the global exchange- traded product market is now worth $119 billion, having risen by $2 billion in August alone. Barclays said more than 80 percent of that total is tied up in precious metals, where gold is the dominant investment product.

Gold has risen to record highs this year, driven in large part by flows of capital into ETFs backed by physical metal as investors have sought an alternative to increasingly volatile stocks, bonds and currencies.

Ends --

By Alonso Soto and Eric Onstad, Reuters - for Commodities Now