Sprott says new copper fund is too small to pose a market risk

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(Bloomberg) -- Sprott Inc. says its new fund to buy and hold physical copper will be too small to have an impact on global availability of the industrial metal, despite past controversy over attempts to launch similar products about a decade ago.

The Sprott Physical Copper Trust, which began trading on the Toronto Stock Exchange in June, holds more than 10,000 metric tons of copper in warehouses mostly in Asia, according to the Canadian investment firm. It now aims to raise another US$500 million, which at current prices would buy about 50,000 tons of copper.

Funds that allow investors to buy and hold physical copper have faced criticism in the past. In 2012, U.S. manufacturers petitioned the Securities and Exchange Commission and even went to court to try to block the launch of similar copper-backed funds proposed by BlackRock Inc. and JPMorgan Chase & Co., arguing the investment vehicles would leave less metal available, creating shortages and boosting prices. Both firms ultimately scrapped their plans.

According to Sprott Asset Management Chief Executive Officer John Ciampaglia, the company’s new fund is too small to make a meaningful dent in a copper market where about 22 million tons is mined annually.

“Having a fund that would be a fraction of that size is beneficial in terms of giving investors another way to invest in the market,” he said in an interview on Tuesday. “We’re not concerned about impacting or influencing the market to a great degree, given how large the market is.”

While Sprott’s stockpile is indeed small relative to global supply, it’s already equivalent to more than all the copper available in warehouses linked to the copper futures contract listed in New York, as well as about 5% of the stocks linked to the contract listed in London. If the fund grows to the point where it attracts around $2 billion in assets, it would need about 200,000 tons of copper, which would be roughly equal to the amount currently available in London and New York warehouses.

Copper prices rallied to record highs in May but retreated in June. Though demand is tepid for now, physical and financial players have positioned for widening deficits and soaring prices in the coming years.

That flurry of investor interest is what inspired the launch of Sprott’s fund, which dubs itself “the world’s first physical copper fund,” said Ciampaglia, who also manages the firm’s physical uranium, gold, silver and palladium funds.

With assistance from Jack Farchy.

©2024 Bloomberg L.P.

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