JPMorgan Copper ETF Approved, But Fear Of Shortage Remains

JPMorgan Copper ETF Approved, but Fear of Shortage Remains

The US Securities and Exchange Commission (SEC) approved JPMorgan Chase & Company's (NYSE:JPM) proposed copper exchange-traded fund (ETF) in December, shooting down arguments by opponents who fear that the fund will reduce physical copper stocks available for industrial use and are considering legal action.

It has been more than two years since JPMorgan first sought approval for the fund, and if all goes according to plan, trading in the fund's shares could begin on the NYSE Arca exchange in the first quarter of this year.

The opposition is mainly based on the assumption that copper stored in warehouses for the purpose of backing exchange-traded shares would remove a significant amount of copper from the physical market, exacerbating existing shortages and as a result driving up prices and making copper susceptible to manipulation by speculators.

“It appears the commission categorically rejected all of the substantial evidence presented as to the catastrophic damage that the proposed (fund) could have for industrial users of copper,” Robert Bernstein of the law firm Eaton & Van Winkle said in a letter to the SEC, asking it to reverse its ruling, Reuters reported. Bernstein said that the consortium that he represents — US copper fabricators Southwire, Encore Wire (NASDAQ:WIRE), Luvata and Amrod, as well as hedge fund and copper trader Red Kite — hasn't decided whether to take legal action against the SEC, “but we certainly laid the groundwork to do that.” The consortium has until February 18 to decide.

The copper ETF would consist of 6.18 million shares, backed by about 61,800 metric tons (MT) of copper held in warehouses, according to a NASDAQ article. Blackrock's proposed iShares Copper Trust — an ETF that the SEC recently delayed ruling on until February 22 — would hold up to 121,200 MT of copper. In total, the two ETFs would reduce the amount of copper available for immediate delivery by about 34 percent, pushing up copper prices and increasing its volatility, according to opponents cited by the SEC in its December ruling.