NEW YORK In a potential blow to copper market participants opposed to the launch of physically backed exchange-traded funds (ETFs), the U.S. Securities and Exchange Commission (SEC) has said there is no strong correlation between copper inventories and prices.
Fund flows into ETFs dont lead to changes in underlying metals prices, the regulatory agency said. It also found "no evidence" of a relationship between the effects of changes in the supply of copper on market prices, nor is there a correlation between London Metal Exchange settlement prices and the amount of copper on LME warrant, it said.
"The staffs analysis found that the statistical relations between the flow of assets to other commodity-based ETPs (exchange-traded products) and the price of the commodities underlying those ETPs are not strong," it said. "The analysis also found no evidence of a statistical relationship between LME inventory levels and LME settlement prices for copper."
The SEC is scheduled to rule on the planned physical copper ETFs, proposed by subsidiaries of New York-based JPMorgan Chase & Co. and BlackRock Inc., on Dec. 14.
The SEC has received opposition to the products from such copper companies as Carrollton, Ga.-based Southwire Co. Inc.; Encore Wire Corp., McKinney, Texas; London-based Luvata UK Ltd.; and AmRod Corp., Newark, N.J.; along with London-based metals-focused hedge fund RK Capital Management LLP.
They argue that the new products would create a supply disruption that would hurt their businesses and the markets they serve, and would have an adverse effect on the countrys economic recovery.
Hamburg, Germany-based copper producer Aurubis AG also recently said that if physically backed ETFs on the market are successful, metal would have to be removed from the market at a time of a worsening supply shortage.
The ETFs studied were for silver, gold, platinum, palladium and copper, namely the iShares Silver Trust, SPDR Gold Trust, ETFS Platinum Trust, ETFS Physical Palladium Shares, and U.K.-listed ETFS Physical Copper.
"These five ETFs were chosen because they were the first physical ETFs to be listed in their respective markets and have since become the largest in terms of assets under management," the SEC said.
The SEC study was completed by economists at its division of risk, strategy and financial innovation.