Canadian investment giant Sprott Inc. is facing questions about the potential impact of its newly launched Sprott Physical Copper Trust. The company maintains the fund’s size is too small to disrupt the global copper market, but historical controversies surrounding similar ventures cast a shadow.
Sprott Physical Copper Trust: A New Player in the Market
Launched in June 2024 on the Toronto Stock Exchange, the Sprott Physical Copper Trust currently holds over 10,000 metric tons of copper in Asian warehouses. The company seeks to raise an additional $500 million, which translates to roughly 50,000 tons of copper at current prices. This new player in the copper market offers investors a way to directly own physical copper.
Investment vehicles allowing ownership of physical copper have sparked debate in the past. In 2012, U.S. manufacturers voiced concerns about similar copper-backed funds proposed by BlackRock and JPMorgan Chase. These manufacturers argued that such funds would limit readily available copper supplies, leading to shortages and price hikes. Ultimately, both BlackRock and JPMorgan abandoned their plans.
Sprott Asset Management CEO John Ciampaglia emphasizes the limited size of the new fund compared to the vast global copper market. Annual mine production of copper sits at around 22 million tons. “Our fund represents a small fraction of the total market,” Ciampaglia said in a recent interview. “Given the immense size of the copper market, we’re not worried about creating a significant impact or influencing prices in a major way.”
Sprott’s Stockpile Compared to Existing Copper Reserves
While Sprott’s current holdings are undeniably small relative to global supply, they already surpass the combined copper reserves in warehouses linked to the New York copper futures contract. Additionally, the current holdings represent roughly 5% of stockpiles connected to the London copper futures contract. If the fund reaches $2 billion in assets, its copper requirements would increase to approximately 200,000 tons – equivalent to the current combined copper volumes stored in London and New York warehouses.
Copper prices soared to record highs in May 2024 before retreating in June. Despite sluggish current demand, both physical and financial market participants anticipate widening deficits and rising prices in the coming years. This anticipated surge in demand is precisely what inspired Sprott to launch its new fund, claims Ciampaglia, who also manages the company’s existing physical holdings of uranium, gold, silver, and palladium.
Sprott’s emphasis on transparency aims to address historical concerns. The company readily discloses its holdings and future ambitions. However, some analysts question whether a larger fund size could disrupt the market in the future. Additionally, concerns remain regarding potential impacts on regional copper availability, as Sprott’s current holdings are primarily concentrated in Asian warehouses.
Source: Mining.com
