By Tatyana Shumsky 
 

NEW YORK--The Securities and Exchange Commission approved the first physical copper-backed exchange-traded fund despite complaints from some U.S. manufacturers and merchants that such a fund would make the metal more scarce.

The approval was the final hurdle for J.P. Morgan Chase & Co. (JPM) to list the JPM XF Physical Copper Trust on NYSE Arca, a division of NYSE Euronext (NYX). The investment bank first filed its request for the fund in October 2010.

The trust would trade like a stock, though its shares would represent ownership of the physical copper stored on investors' behalf. J.P. Morgan wasn't immediately available for comment.

Copper users had opposed plans for the ETF in several comment letters to the SEC, saying it would kneecap the industry by locking up too much copper in investors' hands. The gold market has seen investors' hoard record levels of the precious metal since gold-backed ETFs were started in 2006. This has made copper users apprehensive that a copper-linked product would disturb a delicately balanced market that has faced a production shortfall for three of the past four years.

Southwire Company, the largest U.S.-based copper-wire producer, and other copper-product makers said in a joint letter that a copper ETF would create "forced scarcity" and make it "even harder for industrial users of copper to obtain the metal." The group also said the fund could drive up the global price of the industrial metal. Copper is most widely used in electrical wiring and pipes.

In its approval filing dated Dec. 14, the SEC said it didn't believe that listing and trading of the copper ETF was "likely to disrupt the supply of copper available for immediate delivery."

Moreover, an analysis of market data by the SEC showed that the level of copper inventories has no statistical effect on copper prices, leading the regulator to conclude that copper-backed funds would have no direct impact on market prices.

The Financial Times first reported this filing.

Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com

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