On October 23, the CSRC approved the launch of international copper futures trading for the previous period, with the contract officially listed on the Stock Exchange on November 19,2020. International copper futures as a specific domestic species, using the "international platform, net price trading, bonded delivery, RMB pricing" model, the full introduction of foreign traders. BC2103, BC2104, BC2105, BC2106, BC2107, BC2108, BC2109, BC2110, BC2111 contracts listed on the benchmark price of 47,680 yuan/ton.

1.The first international futures contract to be operated in a "double contract" mode in China

It is worth noting that international copper futures is the first international futures contract to be operated in a "double contract" mode in China, that is, on the basis of keeping the copper futures of the previous period unchanged, international Copper futures listed on the energy market in the last period based on the specific variety model. According to an introduction by the relevant person in charge of energy in the last period, the launch of international copper futures is an important step in the implementation of General Secretary Xi Jinping's strategic plan to "gradually form a new development pattern with domestic and international circulation as the main body and mutual promotion of domestic and international circulation. ". After the listing of international copper futures, it will serve the double circle with double contracts, practice the strategy of opening the futures market to the outside world, and strengthen the ability of the futures market to serve the real economy. The international copper futures price can directly reflect the supply and demand of the global spot market, especially the international market in the Far East time zone, and enhance the bargaining power and international competitiveness of China's copper industry.

2.The conditions for launching international copper futures are ripe

It is understood that China is currently the world's largest producer, consumer and importer of refined copper. China produced 9.784 million tons of refined copper in 2019, accounting for 41.24 percent of the world total, consumed 12.080 million tons, accounted for 50.72 percent of the world total, and imported 3.234 million tons of refined copper, ranking first in the world, according to the Non-ferrous metal and the Chinese customs. The copper futures market has a long history and runs smoothly. It plays an important market role in risk management, price discovery and resource allocation. "Shanghai Price" and "London Price" mutual guidance, the last period has become the international copper industry recognized one of the world's three major copper pricing center. Since the beginning of this year, the domestic and foreign commodity prices have fluctuated sharply, the demand for enterprise risk management is exuberant, and the trading scale of the basic metal futures in the previous period has increased substantially. As of the first three quarters of this year, a total of 41.1699 million copper futures were traded, up 46.05 percent year-on-year; The turnover was 9.74 trillion yuan, up 44.61 percent year on year. The good operation of copper futures and the smooth operation of energy crude oil futures, no. 20 rubber futures and low sulfur fuel oil futures provide experience and basis for the listing of international copper futures.

3.Sufficient preparations for the launch of international copper futures

On October 16, the previous issue of energy on the international copper futures contract and related rules for public comment. According to the current published international copper futures contract (draft for comments) , international copper futures contract trading unit is 5 tons/hand, the minimum change price is 10 Yuan/ton, trading limit is ± 3% of the settlement price on the previous trading day, the minimum margin is 5% of the contract value, with delivery units of 25 tonnes, for a contract month of 12 months. From the current published last energy international copper futures (exposure draft) , and the last copper futures business rules contrast, there are many similarities and differences between the two contracts. On the one hand, they are the same in terms of trading unit, quotation unit, minimum price change, contract month, trading time, final trading day, delivery unit, application time of hedging transaction and arbitrage transaction quota, settlement price of delivery and so on. On the other hand, there are differences in price meaning, delivery grade, delivery mode, delivery date, position limit and trading code.

At the same time, under the framework of the existing business rules of energy in the last period, with the introduction of international copper futures contracts, the amendments at the level of rules are mainly reflected in four aspects: first, the newly listed contracts and annexes; and second, the addition of a chapter in the trading rules, third, a new chapter is added in the "delivery rules" for the delivery of cathode copper futures, involving in and out of the warehouse provisions, delivery management, settlement price, etc. Fourth, "risk control management details" in a new chapter for the Cathode Copper Futures Wind control parameters. On October 21, the last energy notice said that from October 26,2020(Monday) to November 6,2020(Friday) to carry out international copper futures simulation trading. October 23, the last issue of energy on the development of international copper futures market makers recruitment notice. The person in charge of the energy sector in the last period said that the energy sector in the last period will continue to do a good job in the preparation for listing and follow-up supervision under the unified deployment of the China Securities Regulatory Commission, and earnestly improve the market supervision and risk prevention system, we will do a good job in market training and investment to ensure the smooth launch and stable operation of international copper futures.

4.International copper futures spark heated market debate

For the upcoming International Copper Futures, the market is full of expectations. The introduction of international copper futures contracts priced in Renminbi has not only opened up a new channel for enterprises to directly use domestic platforms to carry out hedging of imported raw materials, but also reduced intermediate brokerage links and transaction costs. At the same time, it can effectively avoid exchange rate risk to a certain extent. Experts believe that the introduction of international copper contracts denominated in Renminbi is of great significance for physical enterprises, domestic and foreign electrolytic copper industry and China's position in international commodity markets. He said that the close integration of international copper futures contracts with spot characteristics will further enhance the participation of the "domestic and foreign" spot market for electrolytic copper, facilitating active spot transactions and adequate spot stocks to ensure the country's resource needs for scarce raw materials; international copper contracts facilitating domestic trade and operational risk management of copper-using enterprises, it can greatly reduce the exchange rate risk caused by currency mismatch, improve the difference of preserving value caused by copper containing tax, and reduce the overall enterprise risk operating cost International copper contracts help to better realize the derivative market's price discovery function of electrolytic copper, and form a strong support for China's pricing voice as the world's largest consumer market of electrolytic copper.

Wang Shiran, director of Jinrui Futures Research Institute, believes that international copper futures will be listed after the existing copper futures "neck and neck. ". "The model of bonded delivery and net price trading will bring international copper futures pricing closer to foreign copper futures contracts, enriching the offshore pricing of physical companies. China, as the world's largest producer and consumer of refined copper, will also accelerate the international development of futures companies and strengthen its offshore financial services capacity on the existing basis of brokerage, risk management and asset management.china is the world's largest producer and consumer of refined copper, it is necessary to import a large amount of copper raw materials from abroad every year, and the differences in the pricing methods of copper at home and abroad, as well as the fiscal, taxation, foreign exchange, customs policies and delivery standards between countries, have brought inconvenience to the cross-border preservation of the value of domestic copper enterprises, the actual effect of the operation also brings uncertainty. The introduction of international copper futures will more directly reflect the supply and demand of the global spot market and better serve the international risk management needs of enterprises. At the same time, the introduction of international copper futures can effectively promote the internationalization of the previous period, forming an all-round price system of domestic copper futures, options, Spot warehouse receipts and international evaluation, significantly enhance China's competitiveness as a global copper pricing center. The introduction of international copper futures has also had a positive impact on futures companies. First, it is conducive to attracting foreign investors to participate in transactions and expanding the customer base, and at the same time, it can also promote and improve the level of service; Second, it can meet the deep-seated needs of customers in core industries and guide the domestic transformation of customers'overseas positions; and finally, help futures companies to provide more diverse service options, rich futures company product system. Rollin Wang, chief researcher of Precious Metals and base metals at Guotai Junan Futures, said that after the listing of international copper futures, China's copper futures will be internationalized in a "double contract" model with Shanghai copper futures, copper for the global trade to provide liquidity and to avoid price fluctuations, better serve the numerous industrial chain enterprises and investors at home and abroad. At the same time, the international copper futures enriches the existing arbitrage framework system, provides a new arbitrage market for investors, and helps to enhance the profitability of investors.

In addition, the international copper futures market is an effective complement to the global copper market, which can meet the needs of enterprises in three aspects. International copper futures break through the barriers between the domestic futures market and the international market, and realize the linkage of the prices of Shanghai copper, international copper and Luntong. Trade enterprises, industrial chain enterprises and overseas enterprises can choose the most advantageous price to hedge and avoid the risk of price fluctuation. Second, increase enterprise arbitrage path and promote the close combination of futures flow and spot flow. International Copper Futures Open up the internal and external markets, provide a bonded copper trading place, increase international copper and Luntong, international copper and Shanghai copper arbitrage opportunities, to attract arbitrageurs to participate in international copper futures trading. On the one hand, the listing of international copper futures has changed the traditional mode of free trade zone copper trade, providing a trading place for investors and traders who wish to participate in the copper trade in the tax declaration zone. On the other hand, the international copper futures contract provides a convenient hedging tool for the market, especially when there is no risk arbitrage opportunity, the participation of the international copper futures market will increase obviously, the introduction of international copper futures will help enterprises optimize the hedging effect and realize the refinement of hedging.

5.Based on the listing of international copper futures, the international copper market from different directions to analyze the future development

 (1)International copper listing

For a long time, the spot trade of copper has been highly market-oriented and highly liquid due to its standardization and easy storage. Therefore, the import trade of copper has become a good carrier of financing trade under the special financing environment of our country, and the existence of financing trade makes domestic copper price lower than foreign copper price for a long time. Imports of raw materials such as copper concentrates are priced in LME dollars, while products sold domestically are priced in Shanghai copper futures. The above-mentioned long-term inverted domestic and foreign prices for heavy dependence on raw materials imported copper smelting industry and some of the raw materials dependent on imported copper processing enterprises, is naturally a "loss-making business. ". Due to the need to recover this "loss trading" , all kinds of domestic copper enterprises have to point prices and hedging process in the futures market to seek profits. As you can imagine, there have been many cases over the years. Due to the huge demand for copper in China and the long-term inversion of internal and external price, the imported copper has to be stored in the warehouse of Shanghai Free Trade Zone to avoid import losses. For a long time, Shanghai bonded area copper stocks more than domestic duty-paid copper stocks and LME global warehouse stocks combined. And because Shanghai copper futures do not allow foreign enterprises to participate, Shanghai copper futures prices can not be used for the bonded area outside the customs price of copper trade. As the domestic (and customs) of the Shanghai free trade zone copper trade, but to choose the LME US dollar price plus CIF US dollar premium form to price. It is the most difficult topic for Chinese enterprises and foreign suppliers to negotiate the annual long list of electrolytic copper supply and the annual long list of copper concentrate processing fee. Hence the CSPT (purchasing group for Chinese copper smelters) , the main copper smelters in the United Nations and foreign copper suppliers negotiating prices.

(2)International Copper trading opportunities

As the most famous futures contract in China and the most influential futures contract in the world, there has been a very active arbitrage between Shanghai copper and LME copper for many years. The cross-border carry trade in copper futures has existed for 30 years. However, due to the fragmentation of domestic and foreign capital markets and the restrictions on the free convertibility of the RMB, cross-border copper arbitrage more often due to the price of one-way large fluctuations in the fund management and risk management pressure to make the arbitrage trade risk sharply increased. Through the International Copper Contract of Energy Center, the barrier between Shanghai copper and LME copper will be broken through, and foreign investment in China's copper futures market will be unimpeded. This means that there will be no cross-border barriers and no exchange rate risk arbitrage between Shanghai copper futures and international copper. With the full participation of market forces and the full play of all parties, namely, the barrier-free arbitrage between Shanghai copper futures and INE international copper occurs fully, meanwhile, the arbitrage and logistics between INE copper and LME copper around the price of INE implied CIF US dollar premium are fully taking place in the near future, the relative prices of Shanghai Copper, INE international copper and LME copper will fluctuate in very efficient and flat ranges. This will significantly improve the cost control and profitability of domestic copper importers and copper smelters. The market forces are not fully involved, that is, the initial international copper listing of 6-12 months, "smart money" arbitrage will be the most ideal time.

(3)Outlook for the international copper market

Shanghai International Energy Trading Center the subject of international copper contract delivery is grade a cathode copper in the Shanghai Free Trade Zone. The contract of RMB net price transaction will realize RMB pricing for the trade of the existing free trade zone copper inventory, at the same time, these spot copper traders have gained a national credit grade counterparty-.

As international copper contracts become more and more liquid in the forward month, the forward curve is formed, the contract price of seaborne trade copper and even long-term trade copper will be determined according to the international copper forward price. A year or two later, when CODELCO reported a price similar to today's $882021 for our customers, our customers will remind South American suppliers to price their trade contracts with reference to (corresponding to the implied dollar premium) or even with the price of INE international copper and Renminbi. At the same time, big foreign mines and mainstream traders are watching the deal closely. In the future, due to the existence of the "pipe" of international copper, the price inversion between Shanghai copper, INE international copper and LME copper will be greatly reduced, and this will give our country's copper smelting enterprises an incentive to negotiate with their raw material suppliers to price their raw material purchase contracts in accordance with INE international copper, thus reducing the loss of high-buying raw materials and low-selling products, at the same time, RMB settlement also avoids the risk of foreign exchange fluctuations and the friction loss of foreign exchange hedging.

 Source: Tongxinbao

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