Aluminum To $3000: Physically Backed Aluminum ETF May Soon Become Reality

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September 24, 2009 11:41am ETF BASIC NEWS NYSE:JJU

aluminum1“At the ISRI Commodities Roundtable Forum on aluminum last week, one analyst reportedly suggested that aluminum could rise to $3,000 per metric ton by May 2010—quite a jump from this year’s prices, which have fluctuated between just over


 $1,000 to just under $2,000 so far. Even looking historically, the highest price aluminum has hit in the past five years is comfortably under the $3,000 mark,” Julian Murdoch Reports From Hard Assets Investor.

“Many producers also have positive—albeit more conservative—estimates. Rio Tinto Alcan, for example, expects long-term aluminum demand growth to be along the lines of 4-6%. In the short term, though, executives are more cautious, stressing their current strategy of cash preservation instead of talking price. But not all analysts are quite so pie-in-the-sky optimistic; Goldman Sachs’ forecast is a downright downer. Goldman sees aluminum trading at a much more modest $1,700 per metric ton, or 78 cents per pound—a price below Tuesday’s cash price of $1,864.50 per metric ton (84.5 cents per pound),” Murdoch Reports.

Murdoch continues saying “In the future, we may need to consider more than just construction and manufacturing demand when looking at the aluminum picture: A bona-fide, physically backed aluminum ETF may soon become reality. Glencore International and Credit Suisse are currently in talks to create such an ETF, though at this point, when is unknown—1 month, 6 months, a year? It’s too soon to tell.

“Besides allowing investors to invest in physical aluminum like they can with gold and silver, the creation of such a fund would benefit commodity trading giant Glencore, by giving it another avenue to sell its aluminum inventory. While no official numbers on the subject exist, Glencore is believed to have over 1 million tons of aluminum lying around. I’m sure the prospect of offloading that to a secured location for the benefit of ETF investors has them salivating,” Murdoch Reports.

“As for right now, investors who buy into the $3,000 prediction do have at least one option: the iPath DJ-UBS Aluminum Subindex Total Return ETN (NYSE Arca: JJU), which tracks aluminum futures contracts. Yet, with the recent rumblings against futures-based exchange-traded products and an extremely in-flux CFTC, a physically backed product may be more attractive to investors,” Murdoch Reports.

Full Story: HERE

SEE OUR OTHER RELATED STORY:   Glencore, Credit Suisse Eye Aluminum ETF

Here is a look at the Aluminum Subindex Total Return ETN (JJU) below:

The investment (JJU) seeks to replicate, net of expenses, the Dow Jones-AIG Aluminum Total Return Sub-Index. The index is intended to reflect the returns that are potentially available through an unleveraged investment in aluminum futures contracts as well as the rate of interest that could be earned on cash collateral invested in specified Treasury Bills.

Chart for iPath DJ AIG Aluminum TR Sub-Idx ETN (JJU)

 

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