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SEC rejects Southwire ETF complaint

Keywords: Tags  SEC, Securities and Exchange Commission, Southwire, copper, JPMorgan, ETF, warehouses, Suzy Waite

NEW YORK — There is no evidence that copper end-users "will not be able to obtain their desired brands of copper at their desired locations" as a result of a physical copper exchange-traded fund (ETF), according to the Securities and Exchange Commission (SEC).

"Copper will remain available to consumers and other participants in the physical copper market," the SEC said in a filing responding to Southwire Co.’s claims that the agency ignored warnings over the impact of the ETF on lengthy London Metal Exchange warehouse queues.

The Carrollton, Ga.-based copper fabricator had complained to the SEC that it failed to consider evidence that a JPMorgan Chase & Co.-backed copper ETF would create a bidding war for copper among warehouses and consumers, according to documents filed in March in the U.S. Court of Appeals in Washington (, March 26).

Warehouses have been offering high incentives to traders to entice them to store material, while copper stocks in global warehouses have increased steadily this year as a result.

Copper inventories in Antwerp, Belgium, soared to 123,600 tonnes on April 8 from 44,875 tonnes at the beginning of the year, with canceled stocks at 39,375 tonnes on April 8. Similarly, stocks in New Orleans have jumped to 172,600 tonnes from 75,775 tonnes in the same comparison. Canceled tonnage in New Orleans stood at 45,000 tonnes April 8.

Southwire said that, as a result, there is a crimp in supply, which is in turn pushing premiums north.

According to the SEC, copper is transferred to a participant’s book-entry account within three business days, at which point "the redeeming authorized participant taking delivery of copper from an LME warehouse would then have to wait in the queues just like other owners withdrawing metal from the warehouse."

Therefore, "waiting up to an extra three business days beyond the time required to take copper off of LME warrant is not a significant enough delay to consider the copper delivered ... unavailable for immediate delivery," the SEC said.

The SEC noted that copper also can be stored in non-LME-listed warehouses, which do not have long queues.

The SEC said that as it is unknown how much copper would be shipped to warehouse locations and how quickly, it cannot conclude that queues would in fact become longer.

JPMorgan previously argued that any copper taken out of LME warehouses for the ETF would not disrupt copper supplies as it will remain readily available for consumers and participants. The ETF will start small, backed by less than 10,000 tones, and eventually reach an estimated 61,800 tonnes, although JPMorgan could increase this if the product is successful.

AMM’s spot copper cathode premiums are 4.5 to 5.5 cents per pound, although both consumers and traders said evidence points to an upcoming increase (, April 2).

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