A Defensive Strategy — Commodity market

China rolled out a new copper future contract which open to foreign trader on 19th November, this action aims at pushing yuan adoption and reduce yuan’s dependence on USD. By its huge production and consumption, will China become the price-maker of copper?

As of the close of December 18th, international copper futures had been running for 22 trading days, with a total trading volume of 401,300 lots and a turnover of 102.302 billion yuan; the total open interest at the end of the period was 17,500 lots, an increase of 736.1% from the first day of listing.

Why Copper?

  1. Demand is growing, and China is biggest consumer.

Copper has efficient electricity and heat conductivity. Therefore, copper is an essential component in the motors, wiring, radiators, connectors, brakes, and bearings used in cars and trucks.

According to European Copper Institute, there are 36% of copper is been used in building constructions, 14% is been used in transport, 10% is been used in infrastructure, 15% is been used in industrial.

World Bank’s 2017 report titled “The Growing Role of Minerals and Metals for a Low-Carbon Future” shows, demand for metals, including copper, could rise tenfold by 2050 if the world moves towards a low-carbon energy future.

China is biggest copper consumer according to Statista.

2. Supply is Growing, and China in the third place for production in 2019.

China became one of the biggest copper productions in 2010s

Improving the status of yuan is the long-term goal of the Chinese government. Recent years, the number of futures contracts denominated in RMB are increasing in the international market.

And the purpose of this move is also to increase China’s market influence in major raw materials, especially copper and other materials. Financial experts at the University of Bordeaux in France believe that this does not mean Chinese government wants to raising or lowering market prices, but as a reference in international trade negotiations. Today, this role is assumed by the London Metal Market Exchange.



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