Base Metals Jump on USD Weakness. JP Morgan Seeks to Launch Copper ETF

ONG Focus | Insights | Written by Oil N' Gold | Mon Oct 25 10 07:21 ET

Strength in commodities continued in European session as weakness in USD raised the appeal of these assets. Currently trading at 82.6, the front-month contract of WTI crude oil surged to 82.99, the highest level in 4 days, as risk appetite increased amid expectations that the Fed will announce new easing measures to revive the recovery. Moreover, industrial action across France causing shutdowns in 9 of 11 refineries added to worries about fuel supplies. The precious metal complex rallied with gold advancing to as high as 1249.5 and palladium jumping to a 9-year high of 620.

While USD is the ultimate driving force for oil price, there are other factors supporting the rally. As industrial actions opposing the French government's plan to raise the retirement age to 62 from 60 continue, 1/4 of France's 12 300 fuel stations faced supply disruptions. the refiners' group Union Francaise des Industries Petrolieres said that the country imported 100K tons a day from an average of 20K -25K tons in normal days. The union worried the situation will worsen as the strike will continue at least until October 28. While we believe the impact on US fuel supplies would be limited given abundant stockpiles, prolonged labor actions should unnerve the market.

Another support for oil prices is hurricane Richard. Yet, the impact should dissipate soon as the US National Hurricane Center said the hurricane weakened and was downgraded to a tropical storm and will unlikely cause any damage in Gulf's oil facilities.

Base metals remained strong with copper jumping to a 27-month high in London. Strong import data from China and JP Morgan's plan to launch physically-backed copper ETF contributed to the rally. China imported 383 523 metric tons of copper concentrate in September, up +44.05% and +21.62% on monthly and annual basis respectively. This upstaged declines in imports on unwrought copper and copper products.

Apart from ETF Securities which is planning to start ETF backed by 6 industrial metals, JP Morgan revealed that it will launch a copper ETF, backed by 'grade-A metal, not futures'. As stated in the document filed to the SEC, the shares are 'intended to provide institutional and retail investors with a simple and cost-efficient means, with minimal credit risks, of gaining investment benefits similar to those of holding physical copper'. JP Morgan hopes to start trading on NYSE 'as soon as practical'.

While it's expected that the launch of an ETF backed by aluminum would increase the demand for aluminum and hence the price, the situation may be different for copper. Copper inventory has stayed at low level and price has been rallying. Some analysts concern that further price hike after launch of a copper ETF may hammer demand.

 

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