U.S. copper fabricator ends fight against JPM, BlackRock funds

Reuters

By Josephine Mason

NEW YORK, Oct 28 (Reuters) - U.S. copper fabricatorSouthwire Co dropped its legal fight against physical copperfunds planned by Wall Street banks, as political and regulatoryscrutiny make it unlikely the exchange-traded funds will ever belaunched, according to a court filing on Monday.

Southwire filed the lawsuit eight months ago after JPMorganChase & Co and BlackRock Inc got approval fromthe U.S. Securities and Exchange Commission for the first U.S.funds that would use copper as collateral against shares.

The prospect of the copper ETFs had spooked industrial userswho worried the funds would hoard a vast stockpile of metal offthe market, starving them of raw material and driving up prices.

At the same time, U.S politicians called for more regulationand scrutiny of the multibillion-dollar commodity tradingbusinesses of Wall Street banks. JPMorgan and others are nowtrying to sell off those businesses.

The dramatic change in circumstances surrounding the fundsand their owners have make it less likely than ever that theywould be launched, said Monday's filing to the U.S. Court ofAppeals in Washington, D.C.

"Rapidly changing market conditions now make it unlikelythat the orders being challenged will lead to the listing andtrading of shares," said Robert Bernstein, an attorney at lawfirm Eaton & Van Winkle LLP which represents Southwire.

JPMorgan and BlackRock declined to comment. The SEC did notrespond to requests for comment.

DIFFERENT SITUATION

Southwire, one of the biggest copper users in the UnitedStates, said it still believes the funds would inflate pricesand constrict supplies of the metal used for plumbing andelectrical wire if they were launched.

But mounting political and regulatory scrutiny of WallStreet banks' involvement in the physical commodity trading,particularly the ownership of metals warehousing firms, has cutthe chances that the funds would be ever launched.

On the regulatory front, the Federal Reserve is reviewingits oversight of Wall Street's commodity trading business andthe London Metal Exchange is dealing with a crisis over itswarehousing policy.

"Today the situation is very different," Bernstein toldReuters.

Doubts emerged about whether JPMorgan would push ahead withits JPM XF Physical Copper Trust after the bank put itscommodities business, including warehousing unit Henry Bathwhich would store the fund's metal, up for sale this summer,Bernstein said.

For BlackRock, its plans were complicated when Goldman SachsGroup Inc pulled its Metro warehousing unit as custodianfor the product, he said.

Neither firm has published a final prospectus for the fundswith the SEC. JPM got the green light in December last year andBlackRock in February this year.

The furor over the funds has also waned as market conditionshave deteriorated.

In late 2010, many analysts attributed copper's surge to over $10,000 per tonne from $6,000 to news ofJPMorgan's fund while China's appetite for metal was red hot.

That is dramatically different now.

The copper market is in surplus; doubts remain aboutlong-term demand growth from China, the world's No. 1 metalsuser and commodities have fallen out of favor with investors.

"I'm not seeing the basis for a compelling argument forlaunching an ETF right now. It might come back in the future.But right now it's come and gone," Bernstein told Reuters.

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