NEW YORK U.S. copper fabricators Southwire Co. and Encore Wire Corp. are appealing a decision by the U.S. Securities and Exchange Commission (SEC) to allow a physical copper exchange-traded fund (ETF) sponsored by JPMorgan Chase & Co.
The two companies reiterated their belief in a filing at the U.S. Court of Appeals in Washington that the ETF would lead to an investor-financed squeeze for London Metal Exchange-grade copper in the United States (amm.com, Jan. 11
The companies called the SECs decision to allow the ETF "arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with the law or unsupported by substantial evidence."
Southwire and Encore have been part of a consortium lobbying the SEC through lawyer Robert Bernstein, a partner at New York law firm Eaton & Van Winkle LLP, against the launch of physical copper ETFs (amm.com, May 24
Fellow copper fabricators Luvata UK Ltd. and AmRod Corp., along with metals-focused hedge fund RK Capital Management LLC, had been part of that group but have dropped out of the appeal, which is likely to be time-consuming and costly.
Their views have been echoed by U.S. Sen. Carl Levin (D., Mich.), who has said that ETFs will be used to speculate in copper (amm.com, Dec. 20).
Levin described the SECs approval of the JPMorgan ETF as "a blow to American businesses and consumers that rely on copper for industrial machinery, plumbing, transportation, electric power generation and transmission, and electronics."
JPMorgan says that any copper taken out of LME warehouses for the ETF will not disrupt copper supplies because it will "remain available for immediate delivery to consumers and participants in the physical markets."
The bank plans to start small and build up: The product will be backed by less than 10,000 tonnes of copper when it initially launches, JPMorgan estimates.
The JPMorgan ETF was approved in December, but the SEC has delayed its decision on whether to permit asset manager BlackRock Inc. to list and trade shares in a physical copper ETF until Feb. 22 (amm.com, Dec. 17).
BlackRock has described the proposed ETF as a relatively liquid, low-cost and transparent means to transact in physical copper.
It refutes the suggestion that the product would remove copper from the market and distort prices, estimating instead that as of July, total world warrantable copper supply was 2.926 million tonnes. Of this, 1.358 million tonnes of liquid warrantable copper stocks are available, BlackRock says.
The two ETFs are expected to account for around 180,000 tonnes of copper.