COPPER: RISING TO THE PARTY

When I was learning the ropes of the commodity market in the initial years, my supervisor struck a phrase which has stayed with me since. On comprehending the subject of global economy and how various factors drive it, he said, “When one becomes perplexed with the state of the global affairs, turn to copper since the base metals rise and fall is highly correlated with the health of the global economy.” Years after, the theory has stuck with me as I complete six years of my association with the industry. Since the beginning of the journey, copper has indeed been kind to me in moments of uncertainty and bewilderment. Dr. Copper has inevitably been the saviour on many occasions. 2016 was reviewed as the year for copper but 2017 yet be another one for the record books. Copper prices had surged ahead at the end of 2016, recording a mammoth 24% jump in the month of November alone. Since the beginning of 2017, the value of the base metal has further inclined by 12.53% attaining the highest price of $2.8123 per pound on February 12. However, the price has declined since reaching the lowest at $2.5398 per pound on March 9. 2017 has been a big year for commodities in terms of market opportunities and with due regard to gold and oil, copper has quietly stood out again. The major driving factors for copper since the beginning of 2017 have been numerous. At the worlds largest mine, workers went on a strike. Another mine shut down due to permit conflicts. Add to it an improving Chinese economy with a political sea change leading to new spending on construction and industrial materials… copper has awakened its potential for international traders as a must-have on their portfolio. The big headlines have traders rolling into copper like never before. Since the US election day, copper is the only traded metal to have a big increase in new contracts opened. Trading volumes amplified in recent weeks as the BHP Billiton Ltd. controlled Escondida mine in Chile and Freeport-McMoRan Inc.’s Grasberg mine in Indonesia swerved towards shutdowns. To support the increasing interest in the base metal, copper open interest recorded an all-time high on February 13, rising above 300,000 for the first time at Chicago Mercantile Exchange (CME). One-third of those contracts had been opened in the last four months. According to Young-Jin Chang, CME Group Global Head of Metals, “Copper and other industrial metals have continued to experience heightened levels of volatility and uncertainty. Increasingly market participants are using copper futures to hedge their price risk as evidenced by multiple open interest records and volume growth year to date.” He also added, “The market-driven events continue to become more frequent. This is just the general trend. The word is becoming smaller and smaller.” International traders especially from China are flooding into commodities trading with due significance of the hedging facilities for those traders having an exposure to physical assets. At a time when the global economy paints a positive outlook, copper has alone drawn special attention from global markets. Among its many usages, copper is especially renowned for its use as a common material in construction and other types of equipment and electronics products from refrigerators to iPads. Due to this, the metal has earned the nickname of “Dr. Copper” for its sheer ability to measure changes in the economy. The government of China has called for additional spending on building and construction projects thereby influencing the price of the industrial metals including copper to tread higher. Also, on the other side of the Pacific, the election of US President Donald Trump has reignited hope that the country and other nations will follow through on heightened suggestions of spending billions of dollars on infrastructure. Copper will receive an added impetus on the implementation of these projects from China and USA. According to the CME Group, open interest in copper has inclined by 48% since November 1 while open interest in gold and platinum has declined considerably. Among the precious metals, traders’ interest in palladium has increased by a surprising 33%. In hindsight, more than half the trades had come from producers and swap dealers, including banks which showed that most of the trades are coming from producers and consumers locking in prices for a period of high volatility. The actual trading practice makes sense since many producers have displayed high proportion of risks in the future context. While the proportion of the speculators’ bets of rising prices is at record levels, buyers who are riding on the profits might need to close their positions leading to a quick reversal of fortunes. Copper did pose some interesting insights into the market fundamentals and likewise the global economy in 2016. If the start was suggestive enough, then 2017 will be the same if not better in terms of increased market opportunities for copper traders. We live in an era where the market fundamentals hold the key for renewed market growth for sustainability and development. Inevitably, copper will rise to the party.

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Vivek Risal is associated with Mercantile Exchange Nepal Limited in the capacity of Manager in Research and Development Department. He can be contacted at r&[email protected]