China’s new international copper contract comes at the right time

(Reuters) – Next month’s launch of an international copper contract in China comes at an opportune moment, as the world’s largest importer and consumer of the industrial metal shows once again just how much it dominates the market discourse.

The futures contract will launch on the Shanghai International Energy Exchange (INE) on Nov. 19, the China Securities Regulatory Commission said on Friday.

While a China copper contract is already traded on the Shanghai Futures Exchange (ShFE), the new derivative will be open to trade by foreigners and should offer a much easier path to get exposure to China’s copper market.

The new contract will be traded in yuan, but unlike its competitor, will exclude tax and customs duty, and delivery will be into bonded warehouses.

By contrast, the ShFE contract is largely aimed at domestic traders, offering access to foreign entities through relatively complex structures, meaning its appeal and utility to foreign investors and traders was limited.

Hopes are for the new contract to replicate the success of the INE’s other major futures open to foreign investors, namely crude oil ISCc1.

That has proven useful for the oil market, by allowing for the delivery of several Middle Eastern crude grades to various ports in China, which lets traders gain exposure to prices at both the loading and delivery points.

While the volumes of the INE crude contract are still well below those of global benchmarks such as Brent and West Texas Intermediate, they have grown strongly since being launched at the end of 2018, and have, furthermore, attracted interest from foreign traders.

Where the INE crude contract has perhaps fallen short is that it has not become a global, or even a regional, benchmark.

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