Billy Ray Valentine learns commodities

 ”We think it’s a sad day for consumers of the metal.  We just think there will be less copper in the market, and we will see a significantly more volatile market.”
~Bob Kickham, senior vice president of procurement at Luvata, a copper-parts maker that had lobbied the SEC to block the ETF

Copper is a commodity, a finite resource that has a fairly short term supply over the next couple of decades.  There is a fierce global competition for this commodity but the SEC just approved the first exchange traded fund of its kind in the U.S.  J.P. Morgan and Blackrock just received approval to start a copper ETF that will allow speculators to bid on the price of copper; the big difference here is that both of these funds will purchase and warehouse up to 183,000 tons of copper.  Giving investment banks the ability to actually control the real supply of precious metals will lead to one thing – higher prices for consumers across the board.  The SEC just screwed Americans here.
Futures markets do not normally work this way.  Make no mistake – if investment banks can do this with copper – then they’ll be able to do it with most other precious metals and almost an endless supply of commodities.  Giving banks the ability to control the real supply of commodities gives them the ability not just to bet on the natural supply/demand of a commodity – it gives them the ability to control the natural supply/demand of a commodity.  This will allow banks to manipulate the price of copper and in the near future – whatever commodity they decide to follow the same model with.

“There’s no reason why banks won’t try this with grain and oil next.  As long as they can, why not? Right now, there’s free rein. It will only stop when regulators decide that allowing essential things to be hoarded for investment is misguided investment–and dangerous for the public.”
~Michael Masters, a hedge-fund manager based in New York

Warehousing metals and controlling the real supply of metals is one way to manipulate markets.  J.P. Morgan has been accused of warehousing gold and silver along with Goldman Sachs to manipulate the silver markets.  If you want to understand how that works – read this fascinating account HERE.  Remember – as with most other resources – the U.S. is in competition with China and India to get their first.  Many of America’s foreign policy decisions and imperial domination derives from the need to provide Americans with resources at cheap prices.
Salon finds this quote from a mining executive about the Copper trade HERE:

 “Globally, economic copper resources are being depleted with the equivalent production of three world-class copper mines being consumed annually; meanwhile, copper demand is increasing by more than 575,000 tons annually and accelerating.” Furthermore, “only 56 new copper discoveries have been made during the past three decades,” and “21 of the 28 largest copper mines in the world are not amenable to expansion, while many large copper mines will be exhausted between 2010 and 2015.”

There is a large supply of copper in the earth’s crust but presently – it’s not economically viable to extract this copper.  In time as prices go up – it could be worth it but that means consumers will be paying lots more.  Additionally – technological advances have yet to catch up with the world’s demand for copper.  The last report on copper supply showed Chile commanding 38% of the world’s copper supply (source).  Luckily Chile is currently very stable, prosperous and controlled by a Democratic government; were anything to change that – we could see a major spike in copper prices for global consumers.
The New Republic goes visceral about this decision HERE:

In practical terms, the SEC handed traders at J.P. Morgan control over 20 to 30 percent of the copper available for immediate delivery from the London Metals Exchange — the commercial market where companies that use copper go to procure last-minute supplies.
The investors purchasing shares in J.P. Morgan’s fund won’t be buying copper to use, but to store. The intricacies of the fund are complex, but its underlying rationale is straightforward: the more shares investors buy, the more copper is taken off the market. And the more copper that is taken off the market, theoretically the more valuable the copper and the shares become. The Sumitomo trader who cornered the market in the ’90s relied on the same essential strategy to artificially inflate worldwide copper prices.
Allowing financial interests to interfere with industrial activity is disruptive enough. More troubling is that the SEC’s decision collapses the distinction between precious metals traditionally used for investment, like gold and silver, and metals and other goods that we consume in large quantities, like copper and corn. It signals to bankers that all goods are fair game for financial play, no matter how vital to our economy or our well-being.

Nasdaq has this on the SEC’s decision HERE:

The SEC approval was the final hurdle in a 26-month slog for J.P. Morgan to list the ETF. The investment bank had amended its request at least five times to answer the SEC’s questions and address concerns by U.S. copper users.
Copper manufacturers and merchants wrote to the SEC to oppose the planned ETF, saying it would hurt the industry by locking up too much copper in investors’ hands. In the gold market, investors have hoarded record levels of the precious metal since gold-backed ETFs were started in 2006. This has made copper users apprehensive that a copper-linked product could disturb a delicately balanced market that has faced a production shortfall for three of the past four years.
Southwire Co., the largest U.S.-based copper-wire producer, and other copper-product makers said in a joint letter a copper ETF would create “forced scarcity” and make it “even harder for industrial users of copper to obtain the metal.” The group also said the fund could drive up the global price of the industrial metal. Copper is widely used in electrical wiring and pipes.
Bart Melek, senior commodity strategist with TD Securities, said the removal of any copper from the global market could disturb the balance between supply and demand, especially in the long run.

Reuters has more HERE:

The ETF would sell investors shares in a fund backed by physical metal as collateral. JPMorgan and BlackRock have said that would make it easier for smaller investors to get exposure to copper prices, which have more than doubled in seven years, lifted by demand from China, the world’s biggest copper consumer.
JPMorgan’s fund would store LME brand-approved copper valued at up to $499,761,150 – equivalent to about 62,000 tonnes based on a copper price of $8,000 per tonne. BlackRock’s iShares Copper Trust would use up to 121,200 tonnes of copper as guarantee against shares in its fund.
The two funds would equate to 70 percent of current copper stocks in LME-bonded warehouses.
“If you have a quarter of a million tonnes of copper in LME and an ETF that looks as though it will take a sum almost equivalent to the entire LME stocks, you can’t tell me it won’t have an effect,” Luvata’s Kickham said.