Copper ETF Inflows Hit Record Highs in Q1 2012

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ETF Securities (ETFS) recently released their Global Commodity ETP Quarterly Report, and according to their Q1 data, the report showed that exchange-traded product (ETP) assets worldwide rose to a record $189 billion, the highest quarter-end total ever — including a record rise of $248 million in copper ETP inflows.

MetalMiner caught up with Will Rhind, managing director of ETF Securities, to get his take on the 2012 outlook for metals ETFs:

Based on the last few quarters’ performance, what’s your general outlook for industrial metal ETPs specifically for the rest of 2012?

Based on the first quarter, what we’ve seen is a complete change in sentiment. We had a strong quarter in copper and in some of the other industrial metals. What has changed is better growth and numbers, and also improved production sentiment in the US. If that continues, it provides good bedrock for strong performance of base metals ETFs for the rest of the year.

In terms of the past few months, can you speak to the activity of physically backed industrial metal ETPs as opposed to all/non-physically backed ETPs for copper and aluminum?

We saw strong demand for physically backed copper in Q1, largely based on awareness more than anything else. Those products were launched into environment not conducive to base metals (early 2011), now they’re coming into their own. This kind of thing takes time. [The increased copper ETP inflows are] symptomatic of an increase in investor awareness. In terms of aluminum, concerns of oversupply in the market are the dominant reason that we’ve seen flows holding back, but as fundamentals improve in the sector, investment flow will follow.

Does the copper ETF market affect the overall copper supply/demand picture?

As a percentage of the overall copper market, the total copper held within global copper ETFs is still really miniscule. The portfolio of investor dollars would have to grow significantly before it plays any sort of role in the copper market. If that changes over time, that relationship may change.

EFTS’ quarterly report states overall ETP inflows are up due in large part to “rebound in US economic growth and an orderly restructuring of Greek sovereign debt,” but late last week the Times ran a story saying the IMF and World Bank expect a spring slowdown. Does that jive with what you’re expecting? 

It’s difficult to say — we look at it in the context of what we saw last year. For example, 2010 was a very strong year. Largely that was on the bounceback from the stimulus program. Last year was a lurching of “risk on” to “risk off.” “Risk on” was more positive sentiment in the market, while “risk off” was due to continued problems in Europe, when those boiled to the surface. We’re seeing the same thing this year — more positive sentiment in Europe (even though we’re always prone to troubles in Europe), but looking at slowdown in China.

How is the positive outlook for US manufacturing affecting industrial metal ETFs?

We’ve seen great interest and demand for platinum and palladium ETFs in Q1 — three times the amount of demand relative to gold, in fact. The reason for that has to do with platinum and palladium being key ingredients in auto catalysts. That story is about the rebound and continued improvement in US auto sector. If it’s a diesel car or engine, there’s even more platinum involved. Of course, China’s auto sector continues to motor on…no pun intended.

What’s your take on China — hard landing or no?

Broadly speaking, things are looking better. While the Chinese economy is prone to disappointment, it will only get larger from here.

Can we expect any new launches of base metals ETFs on the horizon?

No brand new launches in the works, but we are trying to launch physically backed base metal ETFs here in the States [currently only available on the LSE] — copper, aluminum, lead, tin, nickel, zinc and a basket of the six. We’ve applied to the SEC to launch those products, and the filing is public.

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