NEW YORK, July 19 U.S. copper fabricators have
ratcheted up their opposition to the copper exchanged-traded
funds (ETF) planned by JPMorgan Chase & Co and BlackRock
Inc ahead of a key ruling by the Securities and Exchange
Commission on Thursday.
Lawyers representing Southwire Co, Encore Wire Corp
, Luvata and AmRod and major hedge fund and physical
trader Red Kite sent the SEC a letter dated July 18 and seen by
Reuters, calling on the regulator to block BlackRock's proposal.
The letter said those copper fabricators, who account for
half their industry's U.S. capacity, believe competing with the
funds would force them to pay higher prices for their raw
materials. A fund could also make the market more volatile,
making fabricators vulnerable to a price collapse.
"The risks associated with the removal of so much copper
could have potentially devastating effects not just on potential
investors in the shares, which should be a concern to the SEC,
but also on existing and future investors in industries that
depend on copper for their primary feedstock," said the letter
from attorneys at Vandenberg & Feliu LLP.
Vandenberg & Feliu LLP is representing the same group in its
opposition to the JPMorgan Chase product.
Criticism of these products has increased ahead of the July
19 deadline for the SEC to rule on JPMorgan's XF Physical Copper
Trust. U.S. Senator Carl Levin warned this week it would create
a boom-and-bust cycle in the market
The July 18 letter from fabricators said copper stored by
the ETFs would represent some 63 percent of London Metal
Exchange (LME) and COMEX stocks in the United States and would
lead to inflated prices and a disruption in supply and flow of
The SEC will decide on Thursday whether to extend the
consultation period by another 45 days or give its approval for
NYSE Arca to list the first such U.S. product on its exchange.
JPMorgan filed its first SEC documents to launch the fund in
October 2010. If it gets approval, the U.S. bank would need to
file a final registration document with the SEC before it can
start marketing and selling the product.
A spokesperson for JPMorgan did not respond to requests for
comment. BlackRock declined to comment due to a regulatory quiet
Opponents of the funds have focused on the impact on North
American end users because most of the 180,000 tonnes of metal
which will be used as physical collateral against the shares in
the two funds will likely be bought in the United States, where
the metal is cheapest.
JPMorgan's first filing said the fund would store LME
brand-approved copper valued at up to $499,761,150 - equivalent
to roughly 62,000 tonnes based on a copper price of $8,000 a
BlackRock has proposed a physical ETF to be run by its
BlackRock Asset Management International unit and called iShares
Copper Trust, which would use up to 121,200 tonnes of copper as
collateral against shares in a fund.
Those tonnages combined are insignificant in a 20 million
tonne global market, but they have worried U.S. fabricators, who
are the main end users of the red metal, because it accounts for
the majority of metal available in U.S.-based exchange-bonded
Fabricators rely on annual contracts for most of their
supply of raw material, but they may have to increase purchases
if there is a pick-up in demand should the economy improve, the
That metal would likely come from exchanged-registered
warehouses, which may not be available if the funds are given
the green light.
The NYSE Arca has defended JPM's plans saying concerns it
will cause a bubble that may be vulnerable to bursting is
"speculative and misplaced", noting the small size of the funds'
collateral relative to the global market.
JPMorgan is expected to launch its fund with an initial
value of $75 million, representing just over 10,000 tonnes, and
will only build up stock if there is demand for the product,
NYSE Arca has said in response to the fabricators' concerns, it