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JPMorgan Copper ETF Plan Seen Creating Havoc by Merchant Groups

JPMorgan Chase & Co. (JPM)’s plan to introduce an exchange-traded fund linked to copper will “severely disrupt” the market, a group of industrial copper users told the Securities and Exchange Commission.

Funds backed by copper would leave less of the metal available for manufacturers, creating shortages and driving up prices, according to a letter filed to securities regulator by Vandenberg & Feliu, a New York-based law firm representing a major copper-merchant company and several copper fabricators.

ETFs trade like stocks, giving investors access to commodities such as copper without taking physical delivery. NYSE Arca Inc., the electronic platform of NYSE Euronext, filed with the SEC to list and trade JPM XF Physical Copper Trust, according to an April 2 document.

JPMorgan’s offering initially calls for the removal from the market of as much as 61,800 metric tons of copper, or the withdrawal of more than 30 percent of the supplies available for immediate delivery worldwide, the merchants group said in its letter.

“JPM’s offering will therefore result in a substantial artificially-induced rise in near-term copper prices on the London Metal Exchange, which will severely disrupt the world market for the trading of such copper,” the group said in the letter, dated May 9.

JPMorgan, BlackRock Inc. (BLK) and ETF Securities Ltd. said in 2010 they planned to start exchange-traded funds for industrial metals. ETF Securities started the first exchange-traded products backed by copper, nickel and tin in London in December 2010.

Copper holdings in ETF Securities’ exchange-traded product were 3,426.83 metric tons as of May 23, compared with 225,700 tons in stockpiles monitored by the London Metal Exchange. Copper for delivery in three months fell 2.7 percent to $7,531 a ton today, and has dropped 10 percent this month.

The Financial Times reported the copper group’s letter to the SEC earlier.

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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