JP Morgan Submits Plans To Manipulate Copper Market

April 16, 2012 at 21:16

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Investment bank JPMorgan has lodged a filing to list a copper-backed exchange-traded fund (ETF) with NYSE Euronext in the first sign for nearly a year that a new product, potentially tying up 60,000 tonnes of metal, may list.

J.P. Morgan Commodity ETF Services lodged a proposal to list and trade shares of JPM XF Physical Copper Trust in a filing dated April 2, 2012.

According to a NYSE spokesperson, the filing has already been submitted to the U.S. Securities and Exchange Commission (SEC) for review, and will post to the SEC’s web site as well as its Federal Register by April 23, for public review and comment.

Upon completion of a 45-day review process, the product could come to market as early as June of this year, the spokesperson said.

In its original filing in October 2010, J.P. Morgan said it would store copper valued at $499,761,150 — equivalent to roughly 61,800 tonnes based on a copper price of $8,086.75 a tonne.

The filing said the bank will use its warehouse company Henry Bath Group to store the metal in both on- and off-warrant facilities initially in the Netherlands, Singapore, South Korea, Shanghai, and the United States.

Cash prices on the London Metal Exchange have risen almost $200 per tonne above the three-month prices, which signals concerns about near-term tightness in the market. But some investors are growing more concerned about the demand outlook in China, the primary source of growth in demand for the red metal.

Filings by three funds run by JP Morgan, BlackRock, and ETF Securities for copper-backed securities in late 2010 sparked a rally that pushed copper prices up above $10,000 a tonne in February, 2011.

But the expected demand crunch did not materialize, and copper prices have retreated. LME benchmark copper futures fell below $8,000 per tonne on Friday for the first time in three months.

“It’s probably fair to say there’s less interest now. … There was a lot of hype last time around, and investors are a bit more cautious in their interests in general,” metals analyst Stephen Briggs of BNP Paribas said.

Investor appetite for commodity-backed securities has waned this year as investors grew more worried about the global economy and demand for raw materials.

Flows into growth-sensitive commodity exchange traded products such as copper slowed in March as mixed economic data from China has investors worried about demand.

Briggs also said technical issues surrounding the structure of physically funds in general may also deter investors.

“There are two technical reasons why it may be less effective — the storage costs and there is also a backwardation, which means that other things being equal, you missed out on the roll yield that other forms of investment give you,” he said.

Noting global copper market forecasts for a supply deficit this year, Briggs said any product that locked metal away from the market could end up raising prices for consumers.

For instance, in the aluminum market, millions of tonnes of the metal are locked in storage on financing deals.

“If I’m wrong about that, there’s no question in my mind that it will have an impact on the market, because the copper market is quite tight physically,” he added.

“A physically backed ETF in that sense is no different from financing deals. The financing deals have raised costs for consumers. This arguably could do the same thing.”

The copper market is seen in a 180,000-tonne deficit this year, according to a median estimate of 37 analysts polled by Reuters.

J.P. Morgan declined to comment on the new filing.