Finally, the SEC is skeptical that all of the 6.18 million shares in the ETF will be scooped up by buyers upon launch, requiring JPMorgan to acquire the full 61,800 MT of copper immediately. It said JPMorgan predicts the initial share offering will hold 9,893 MT of copper.

Still, Seeking Alpha contributor Stuart Burns said he has some sympathy with consumers fearful of the impact that physically backed products could have on the market.

“Financial involvement has distorted the aluminum market so badly that there are officially some 5 million tons and potentially twice that sitting isolated from the market,” Burns said. The resulting competition has created premiums on aluminum, “over and above the LME price,” he added.

It could be that the JPM XF Physical Copper Trust's impact on the market will be dictated by how many investors are interested in participating, and whether their intention is to just sit on the shares or to consume the copper. If existing copper ETFs indicate how JPMorgan's fund will do, opponents may be able to breathe more easily. ETF Securities' copper fund currently has $29 million assets under management, equivalent to about 3,700 MT of copper at today's prices, or, in the SEC's words, it hasn't “grown to a substantial size since its inception.”

“I'm not sure there's a net positive demand that's all of a sudden going to materialize because of the product,” David Goerz of HighMark Capital Management in San Francisco told Reuters. Another investor, Charles Gradante, whose Hennessy Group invests in commodity hedge funds, said he won't invest until the market capitalization of the fund is up to $1 billion, suggesting that for now, investors who typically chase highly liquid investments may hold off, mitigating any impact the fund will have on physical copper stocks.


Securities Disclosure: I, Ragnhild Kjetland, hold no investment interest in any company mentioned in this article. 

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NYSE-Traded Copper ETF Faces Uphill Battle