--The proposed JPM XF Physical Copper Trust would be the first
of its kind in U.S.
--The ETF would list on NYSE Arca and would be backed by 61,800
metric tons of copper
--Manufacturers worry the ETF would make copper more scarce and
drive up prices
NEW YORK--The Securities and Exchange Commission has approved
the first exchange-traded fund in the U.S. that would allow
investors to buy copper, despite complaints from some manufacturers
and merchants that such a fund would make the metal more
scarce.
The proposed JPM XF Physical Copper Trust would be initially
backed by 61,800 metric tons of actual metal, compared with
currently available copper ETFs, which are backed by futures.
J.P. Morgan Chase & Co. (JPM) plans to list the ETF on NYSE
Arca, a division of NYSE Euronext (NYX). A date for the listing
hasn't been released, and J.P. Morgan wasn't immediately available
for comment.
The SEC approval was the final hurdle in a 26-month slog for
J.P. Morgan to list the ETF. The investment bank had amended its
request at least five times to answer the SEC's questions and
address concerns by U.S. copper users.
Copper manufacturers and merchants wrote to the SEC to oppose
the planned ETF, saying it would hurt the industry by locking up
too much copper in investors' hands. In the gold market, investors
have hoarded 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 could disturb a delicately balanced
market that has faced a production shortfall for three of the past
four years.
Southwire Co., the largest U.S.-based copper-wire producer, and
other copper-product makers said in a joint letter 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 widely used in electrical wiring and pipes.
"We think it's a sad day for consumers of the metal," said Bob
Kickham, senior vice president of procurement at Luvata, a
copper-parts maker that had lobbied the SEC to block the ETF. "We
just think there will be less copper in the market, and we will see
a significantly more volatile market."
Bart Melek, senior commodity strategist with TD Securities, said
the removal of any copper from the global market could disturb the
balance between supply and demand, especially in the long run.
"If anything were to happen to supply, that marginal amount
could drive markets. It has the potential to matter," Mr. Melek
said.
In its approval filing dated Dec. 14, the SEC said it didn't
believe 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 the level
of copper inventories has no statistical effect on copper prices,
leading the regulator to conclude copper-backed funds would have no
direct impact on market prices.
Nicholas Snowdon, a metals analyst at Barclays, said it was
unlikely the JPM XF Physical Copper Trust would have much of an
effect on the copper market because investors haven't shown much
interest in copper ETFs. A two-year-old fund in the U.K., ETFS
Physical Copper (PHCU), holds less than 2,000 tons of copper.
"We are extremely skeptical of investor appetite for such a
product," Mr. Snowdon said.
Another physical-copper ETF, filed by BlackRock Inc. (BLK), is
awaiting the SEC's approval. BlackRock's iShares Copper Trust would
remove the equivalent of 121,200 metric tons of copper from the
market, according to regulatory filings.
"We've seen these things before," said Edward Meir, senior
commodity analyst with brokerage INTL FCStone. "Having an
investment product doesn't necessarily ensure its ultimate
success...just to introduce an ETF in the middle of a global slump
is not going to do it," he said.
Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com
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