Reuters quoted 4 industry sources across Asia as saying that Glencore International and Credit Suisse are in advanced discussion about creating the world's first physically backed aluminium exchange traded fund.
While they said that a launch is not yet imminent, interest in physically backed commodity products is widely expected to grow as tougher US regulation on futures contracts threaten to shift investment flows toward exchange listed physical ETFs.
A senior official with a trading and investment firm that does business with Glencore said that “The first tranche of the financial product would be worth USD 1.5 billion to USD 2 billion.”
Such a fund could allow Glencore, which has a strategic derivatives trading alliance with Credit Suisse and has already launched an active trade commodity index fund with the investment bank, to gradually release some of the over 1 million tonnes of physical aluminium it is believed to have amassed in 2009. The fund would also join a growing global suite of financial products that are enabling institutional and retail investors to tap into the commodities boom.
Although discussions have been ongoing throughout the year, the 2 must still overcome key obstacles before moving ahead including convincing an established ETF provider that investor appetite is strong enough to offset the rising cost of storage and financing, as well as logistical complexities.
One source said that "There are a lot more complications such as the physical premium, cost of storage than with precious metal ETFs. But aluminium is the obvious one to do of the base metals it's got a supply overhang, relatively cheaper storage."
It was not immediately clear how or where Glencore would list the ETF, suggesting that the product would still need to pass regulatory muster on a securities exchange, a process that can be prolonged based on previous precious metal ETFs.
One trade source said that such an ETF could be announced as soon as the London Metals Exchange Week event next month but a second source said that a launch this year appeared highly unlikely.
While other base metals ETFs have been traded for some time, they are typically backed by the issuer who will offset the investment on exchanges rather than buy the actual resource whereas a physically backed ETF requires the operator to purchase and stockpile the commodity as investors buy the fund.
(Sourced from Reuters)
