NEW YORK Financial instruments such as physical copper exchange-traded funds (ETFs) will "wreak havoc" on the market, distorting prices and increasing volatility, according to a senior executive at one of the worlds largest consumers of the metal.
Bob Kickham, a senior vice president at London-based Luvata UK Ltd., told AMM that the company has a "fundamental objection" to physical copper ETFs and similar financial instruments, a view it has taken to the U.S. Securities and Exchange Commission (SEC) as it considers whether to approve their launch.
"The world needs metal to be available to end-users to make useful goods and services, not tied up in investment vehicles or complex, inflexible systems," Kickham said. "We dont understand the need for ETFs and believe they will distort the market. We dont like the effect they will have on taking industrial material out of the market, and we believe they will bring unnecessary volatility, which makes it very difficult for consumers to plan."
Luvata is one of a group of consumers lobbying the SEC against proposals by New York-based JPMorgan Chase & Co. and BlackRock Inc. to launch separate physical copper ETFs.
The other members of the consortium are consumers Southwire Co. Inc., Carrollton, Ga.; Encore Wire Corp., McKinney, Texas; and Newark, N.J.-based AmRod Corp.; as well as London-based hedge fund RK Capital Management LLP, which focuses on metals.
"Were more worried about the medium- and long-term effects, not the short-term impact of financial instruments like ETFs," Kickham said. "Securities like this will come and go and wreak havoc on the copper market until theyre banned, and then someone will think of another financial instrument that will replace them."
In what was seen as a blow to copper market participants opposed to the launch of physically backed ETFs, the SEC last month said that there was no strong correlation between copper inventories and prices (amm.com, Nov. 9).
A decision by the SEC on proposed ETFs is imminent.