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Markets

China's new international copper futures slip on debut

  • INE bonded copper closes down 1.2% on 47,090 yuan/tonne.
  • Jiangxi Copper, Minmetals among first firms to trade – INE.
  • Trading volume around one-ninth of ShFE copper contract.
19 Nov 2020

SHANGHAI: China's much anticipated bonded copper futures, which are open to overseas investors, fell more than 1% on their debut on Thursday, with trading volumes only reaching one-ninth those of the country's established domestic copper contract.

Front-month copper on the Shanghai International Energy Exchange (INE), for delivery in March 2021, closed down 1.2% at 47,090 yuan ($7,162.85) per tonne.

Market watchers said the listing price - which at 47,680 yuan exceeded Wednesday's closing price on the London Metal Exchange in dollar terms - had been a little on the high side.

Companies involved in the first batch of trades included state-run quartet Jiangxi Copper, China Minmetals Corp, Wanbao Mining and Bank of China International, as well as UK-based brokerage Sucden Financial and Singapore firm Envy Global Trading, an INE statement said.

Trading house Trafigura was also one of the opening-day participants, a source from the company said.

"The level of attention paid to this contract is pretty high, although not everyone jumped into trading on the first day," said a Shanghai-based trader, adding that he expected hedging and price discovery to eventually occur.

"Open interest and liquidity will eventually increase."

The trading volume on the March INE contract was 7,555 lots on Thursday, versus 68,506 lots for the most traded domestic copper contract on the Shanghai Futures Exchange.

Unlike the INE price, the Shanghai futures prices includes 13% value-added tax and closed up 0.2% on 52,660 yuan per tonne on Thursday.

INE copper is China's sixth internationalised commodities contract after crude oil, iron ore, TSR 20 rubber, low-sulphur fuel oil and purified terephthalic acid (PTA). It is denominated in yuan, with delivery into bonded warehouses.

China, the world's top copper consumer, aims to become a commodities pricing power and promote the yuan as it opens up its futures contracts to allow foreign participation.

Traders say the new INE contract could eventually boost global adoption of the yuan and reduce some pricing power from copper's current global benchmark in London.

"We've seen arbitrages between Comex, LME and ShFE, so the INE contract is like a centre for the other three markets. I think the arbitrages will persist," said Tiger Shi, managing director of broker Bands Financial.

"The INE exchange has to ensure liquidity, and the design of the contract has to be accommodative to what the market needs, but at the moment this is a good start."