Fabricators Win Ground Against Physical Copper ETF

ETF Trends

Exchange traded fund providers were working on a physically-backed copper funds, but negative feedback from copper fabricators was enough to halt development.

The representatives for Southwire Co., the largest copper-wire producer in the U.S., ended legal action against J.P. Morgan Chase and BlackRock’s proposed physically backed copper ETFs as the two money managers put the idea back on the shelf, reports Matt Day for the Wall Street Journal.

An attorney who represents Southwire stated that the sponsors would not be able to launch the products in their current forms outlined by the respective prospectuses. [Proposed Physical Copper ETFs Face Resistance from Fabricators]

“Since the filing of these appeals [against the ETFs' approval], certain events now make it unlikely that these proposed products will ever come to market,” Robert Bernstein, an attorney with Eaton & Van Winkle LLP, said in a filing requesting the dismissal of the suit.

The SEC approved J.P. Morgan and BlackRock copper-backed ETFs, but Southwire engaged in litigation, contending that there was not enough insight on how the funds would affect prices for industrial users. [BlackRock’s iShares Copper ETF Gets SEC Green Light]

The two firms first proposed a physical copper ETF back in 2010 when copper prices were touching record highs on surging Chinese demand. Currently, supply is outpacing demand, and prices are down for a second year.

The proposed copper ETFs would be backed by copper stores like similar precious metals ETFs – sponsors would hold physical stores in a warehouse or essentially remove a chunk of global copper supply. Additionally, a copper ETF’s fees may be higher due to the costs associated with storing a large inventory of the red metal.

Investors, though, can still gain exposure to copper futures through the exchange traded note, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) . JJC is up 5.6% over the past three months but is down 12.5% year-to-date.

For more information on copper, visit our copper category.

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