In mid-December, the U.S. Securities and Exchange Commission approved a proposal by J.P. Morgan Chase & Co. (NYSE: JPM) to create an exchange traded fund backed by physical copper. Copper users and traders had waged a battle against the fund, but the SEC concluded that there was no evidence that such a fund would have a negative impact on the supply of copper.

The traders and users have not given up. In a 37-page letter, a U.K.-based copper trader and four U.S. end-users of copper have challenged the SEC’s decision:

[W]e believe the Commission’s findings that the listing and trading of shares in the JPM Physical Copper Trust will not have a material impact on the supply of physical copper available for immediate delivery is not based on substantial evidence and is therefore arbitrary and capricious.

The main point of the petitioners’ letter is that there is a very good chance that a fund backed by physical copper will result in the removal of substantial quantities of the red metal from warehouses in London and New York and “that such removal will obviously drive up the price of copper … and create shortages of supply.”

There is at least some evidence to back up the letter’s claims. Funds backed by physical gold have piled up significant amounts of the yellow metal and have contributed to the rise in the price of gold.

If a fund backed by physical copper is allowed to go forward, it will no be long before funds backed by physical quantities of other base metals are proposed and, presumably, approved. It is a little difficult to see how these funds won’t put upward pressure on prices for the base metals that are used to make everything from cars to cellphones.

The letter to the SEC is available here.

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