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Physical Copper ETFs Face Pushback from Industry


JP Morgan (JPM) has received SEC approval for the first physically backed copper exchange traded fund, but the decision has been met with wide disapproval from fabricators that contend the new fund would incite greater volatility and speculation.

A group of fabricators, which represents half of U.S. demand for copper, demanded the SEC to reconsider its decision on the copper ETF, criticizing regulators as “arbitrary and capricious,” reports Josephine Mason for Reuters. [SEC Green-Lights JP Morgan Copper ETF]

The fabricators argue that the SEC has not given enough assurances that the physically backed copper ETF would not distort supply and prices in the copper market.

Industrial users believe that the physical copper ETF would have a “devastating” affect on the market as the easy access would disrupt supplies and inflate prices since the ETF would have to physically hold a set amount of copper to back the shares, which effectively removes a chunk of global supply.

“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, an attorney with the law firm Eaton & Van Winkle LLP, who represents the group of fabricators, said in the article.

Bernstein has warned that they will take the decision to the federal appeals court if needed.

“We haven’t made up our mind yet, but we certainly laid the groundwork to do that,” Bernstein said in the article.

Fund providers, though, argue that any concerns are unfounded since the new copper ETFs would be miniscule compared to the 20 million ton global copper market – according to SEC filings, the physical copper ETFs would take up 183,000 tons of copper. After JP Morgan’s approval, many also expect the SEC to provide a similar ruling on BlackRock’s proposed copper fund due on Feb. 22. [SEC Pushes Back Ruling on iShares Copper ETF]

The threat of litigation could further impeded JP Morgan’s efforts to launch the fund – it is now two years since the asset manager first filed for regulatory approval on the copper fund.

For more information on copper, visit our copper category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.