Demystifying a commodity - Copper

Copper, an excellent conductor of heat and electricity, finds use in many sectors, including construction, electrical/electronic products, industrial machineries and transportation equipment. Economists gauge the economic prospects of a country from its demand for copper.

Major players

Chile leads the world in mine production. But when it comes to refined copper production and consumption, China leads the pack, accounting for over 45 per cent of global copper demand. Keeping a close watch on developments in China can give a cue on how copper prices may move. Similarly, any infrastructure spending announcement by the US or other large developed countries also takes prices higher as it will stoke demand.

Take, for instance, the strong rally in copper prices seen last year after the US Presidential election. Copper prices, which were trading at a multi-year low, got a boost from Donald Trump’s surprise victory in the elections. This is because during his election campaign he had promised job creation in the construction, steel and other manufacturing sectors by spending on infrastructure.

Domestic market futures

On the Multi Commodity Exchange (MCX), copper is traded in two variants - Copper and Copper Mini, Monday to Friday from 10 am to 11:30/11:55 pm. The Copper contract has a lot size of one tonne whereas Copper Mini comes with a smaller lot size of 250 kg.

For a trader, there is an initial margin requirement of 5 per cent. Brokerage and other charges add to the cost for the trader. Margin requirements will vary depending on the volatility of the market. Physical delivery happens only if both the intentions of the buyer and the seller to take or give match. Else the contract is cash settled.

The copper futures contract traded on the LME and COMEX are the global benchmarks. The MCX contract moves in tandem with the global contracts. The movement of the rupee against the dollar will also influence MCX prices. Catching the trend in the LME or COMEX contract, with a view on the rupee, can help one figure out the trend in the MCX-Copper contract.

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