Montreal—(Kitco News)--Demand for copper from Brazil, Russia, India and China and an expected rebound in the manufacturing sector elsewhere have set the stage for the creation of exchange traded funds (ETFs) for the metal.
The prospects for the rebound and recent investor demand convinced BetaPro Management of using an ETF to help investors get direct exposure to copper.
BetaPro’s decision was not made, however, without some trepidation. Howard Atkinson, President of BetaPro Management, initially had concerns over market liquidity. Atkinson said that three years prior to launching North America’s first leveraged and inverse-leveraged Copper ETF, that there were “time periods that the liquidity dropped off on the Comex Copper futures side…”
“Now we don’t see those issues of liquidity which is one of the reasons coupled with investor demand that we are able to go and launch our Copper ETF” said Atkinson.
In a recent interview with Kitco News, William Rhind of ETF Securities also said that Copper is a natural for an ETF because it is a lead indicator for economic growth. Rhind said the Chinese are major buyers and the production of the red metal is concentrated in relatively few hands. “It is a sector that people want to get exposed to, especially if they are bullish on economic recovery,” he said. Because of this, copper will continue to have tremendous potential as it is so sensitive to economic growth or decline in the demand for the commodity itself.
The first two-times leveraged and two-times inverse leveraged Copper ETF in North America, Horizons BetaPro Comex Copper Bear Plus ETF (HKD) and Horizons BetaPro Comex Copper Bull Plus ETF (HKU) will offer price exposure that will correlate with copper’s future contracts through the daily price performance. Investors will now be able to buy into copper without indirectly buying into base metals equities. The fund works on the basis that any gains or losses are magnified 200% of the daily net asset value invested. “On a daily basis they mirror each other inversely, they move in opposite directions.” says Atkinson. According to Atkinson, ETFs are a very convenient, liquid and low-cost way for investors to gain access to assets classes.
Copper’s outlook in coming months appears to be favorable for the ETF. George Gero of the RBC Wealth Management Group, said the BRIC countries will be instrumental in copper’s performance, which will make the marketplace more favorable for an ETF.
Gero said all have been significant buyers of copper as they continue to develop their economies, further increasing the use of copper worldwide.
“China continues to buy copper, but so does Brazil and India, Gero said. “There is good demand from the BRIC countries ongoing.”
According to the recent RBC Capital Markets forecast report, industrial demand for copper is expected to increase as emerging markets continue to develop their economies at a rate of 7.5% in 2010, with an average price of $3.10/lb for 2010.
Globally, RBC Capital Markets have forecasted a rebound in refined copper production over a three-year period at a rate of 5.8% in 2010, 5.7% in 2011 and 4.9% in 2012. Accordingly, these emerging markets have impacted copper’s investment potential, similarly for China as for the U.S., copper is an important component in their industrial recovery, rebuilding and infrastructure and the demand will grow as these countries continue to expand,” RBC said.
Copper has not always held the same prestige as Gold or Silver, according to Orest Wowkodaw, Research Analyst at Canaccord Genuity. Wowkodaw said copper is much more volatile than gold, especially in terms of production means and disruptions to the chain of delivery. Strikes, earthquakes, natural disasters as well macro-economic factors can all be leading indicators for the direction of copper prices. He said that “annually 5% to 6% of global copper production is knocked out for various reasons,” However, the global consumption demands driven by China and other emerging markets will continue to bolster copper prices in the short-term. Orest said that 40% of the world’s consumption is driven through China and basically represents the only growth in demand worldwide; by comparison the US drives only 15% of global copper consumption which is not as significant as it once had been.
