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Dec 6th 2010, 16:10 by The Economist online
ALL that glisters is not gold, as the old saying rightly affirms because at the
moment, copper is shining too. Last week the price of gold surged past $1,400
an ounce, but for pure performance copper is the clear recent winner. Since the
middle of the year the price of gold has risen by a decent 13%; copper, on the
other hand, has soared by 35%. Stocks of copper at the London Metal Exchange
(LME) are down to 8 days of global consumption; add in holdings at Shanghai s
exchange and producer stocks and it creeps up to close to a fortnight.
On December 3rd rumours circulated that JPMorgan bought up warrants for more
than 50% of the LME s copper stocks, probably in readiness to launch a
physically backed exchange-traded fund (ETF), a popular investment vehicle for
gold that is now set to spread to a wide variety of base metals. The race to
launch copper ETFs is swiftest because it is the metal in shortest supply.
China s mammoth demand for copper it sucks up 40% of world supplies has not
been matched by fresh supplies. New copper deposits are thin on the ground. As
older mines get deeper and the choicest parts of deposits become exhausted, ore
grades have declined. In all, there has been very little net growth in supplies
for several years.
Plumbers are steadily switching from copper pipes to plastic ones; and the
Chinese have found a way of substituting the metal with cheaper aluminium in
air-conditioning units. Despite this, demand for other uses is still set to
outstrip supply, and prices to rise, in the next couple of years or so. This
makes copper alluring to the investor hence the slew of ETFs backed by physical
copper that are set to be launched. BlackRock, Deutsche Bank and ETF Securities
hope to join JPMorgan in offering investors exposure to physical copper. This
too is sure to push prices higher as the funds take copper off the market at a
time of tight supply. If regulators can be persuaded to set aside their
objections and allow these ETFs to trade, copper, currently trading at over
$8,750 a tonne could be pushed up beyond $10,000 according to RBS, a bank.
Other are not so sure. Investors, who can already invest in copper through the
futures market, may not want the reassurance of holding physical supplies.
Unlike gold it is far too bulky to be of use for slipping a couple of bars into
a case and making a dash for the border. Its bulkiness means it costs more to
store. But even if investors aren t keen on copper ETFs the laws of supply and
demand are set to push prices higher anyway. For now, that is. Those same laws
have started to prompt investment in developing new copper mines and expanding
existing ones. From 2012, as this extra supply comes on to the market, the
metal may begin to lose its lustre.