Chinese traders on the Shanghai Futures Exchange are increasingly influencing the price for copper, rather than on the London Metal Exchange, analysts say.
“We’re seeing the center of gravity in the metals pricing shift to China,” said Dane Davis, commodities research analyst at Barclays.
China accounts for nearly half of the world’s consumption of copper, according to Reuters. While traders for years have looked at Chinese data as an indicator on future copper demand, pricing typically followed trading in copper futures contracts from the London Metal Exchange and Chicago-based CME.
In the last three years, analysts said increased trading activity on the Shanghai Futures Exchange has made it more and more important for global markets. The Shanghai market also has a timing advantage, since it begins the trading day ahead of London and Chicago.
“LME is the global benchmark, but the Shanghai center [has] increasing input in how the LME price trades,” said Colin Hamilton, managing director, commodities research at BMO Capital Markets.
Asia metals trading is growing so rapidly for CME, the world’s largest futures exchange, that it is planning to launch on Nov. 20 a futures contract settled against spot copper prices in Shanghai. CME said its contract will be the first financial settled exchange-traded futures product for hedging exposure to Chinese copper.
“We believe this new contract, which will complement CME Group’s existing physically delivered benchmark COMEX copper futures, will become a reference price for copper traded in or delivered to China,” Young-Jin Chang, executive director of metals products and global head of metals at CME Group, said in a statement.
Year-on-year trading volume in CME’s copper futures contract is up 31 percent, while that of the LME is down 7 percent, Chang told CNBC.
On Thursday, open interest for copper was greatest on the Shanghai Futures Exchange, at 125,994, followed by CME’s COMEX at 96,023 and 84,215 on the LME, according to Thomson Reuters data. Copper has surged more than 22 percent this year, to a three-year high, as traders have bet on greater demand from China.
Source: CNBC
