The U.S. Securities and Exchange Commission (SEC) has restated that JPMorgan Chase & Co’s planned exchange traded fund backed by physical copper will not distort supply or prices of the red metal, as users claim.
Commodity buyers fear the fund would cut off supplies of the industrial metal used in construction, causing prices to increase. Their worries are based on the fact the JPMorgan’s XF Physical Copper Trust will use physical copper cathode as collateral against its shares, removing a quota of this metal from the market.
The approval, announced by the SEC on Dec. 14 after a two-year wait, was upheld in a filing dated March 28, posted on the SEC website.
“The commission does not believe that … as a result of the trust, it is much more likely that brand-sensitive end-users of copper will not be able to obtain their desired brands of copper at their desired locations,” the SEC said.
This statement came after a last-ditch effort by a consortium of copper users to get the regulator to overturn its decision. Their attorney Robert Bernstein with law firm Eaton & Van Winkle LLP asked the regulator to block the fund in early January.
The resolution makes it easier for the bank to launch its product, which has been criticized by U.S. politicians and copper producers since its inception.
Gold ETFs have been very supportive of the price and combined these funds now hold almost 2,500 tonnes of the precious metal, but given copper’s essential role in the global economy investors hoarding physical supply will have a different dynamic altogether.
According to Mickey Fulp, author of The Mercenary Geologist, since 30% of the copper stored in warehouses is not available to the market prices might skyrocket.
“The real concern here is that physical ETFs for industrial metals could be disastrous for the supply-demand fundamentals of the market. I personally do not think that this ETF is going to come about. If it does, then we will have even more manipulation of the copper market than at present. I don’t think that would be good for a healthy supply-demand balance,” he said last month.
Earlier last year an entity took control of up to 90% of cash contracts and inventories on the LME. Stock levels at the LME’s 600 warehouses around the world are at historically low levels of 250,00 tonnes – down from 450,00o tonnes a year ago. 73,500 tonnes are also held in COMEX warehouses.
Asset management firm BlackRock Inc. (NYSE:BLK) and ETF Securities Ltd. have also said they plan to start physically backed ETFs for industrial metals in the U.S.
Copper is often referred as “Dr. Copper” for its alleged foretelling powers in signalling the health, or otherwise, of the global economy.
