At a Glance
- High levels of copper futures interest are a regular occurence
- China, U.S. Dollar helping drive interest in copper
The market has high expectations for global economic growth. We know that from a string of activity in copper trading that has lasted months. In mid-October, copper futures saw a three-year high.
Prices are not the most important indicator of popularity, however. To truly gauge the interest in copper, we should look to the number of open futures or options on futures contracts in copper. That number tells us how many institutions and traders are invested, looking to hedge or capitalize on price moves. And those numbers have been setting new records for several months. On October 25, COMEX Copper Options on futures reached their seventh straight trading day with highs for the year. In fact, the high for the year in copper options open interest has been set 23 times this year, going to levels not seen since 2005.
It’s been a trend since January – copper interest has picked up in expectation of further economic growth for China. China consumes nearly half the world’s copper supply, so any movement in its economy will ripple through all kinds of markets related to manufacturing, building and infrastructure.
Copper is frequently referenced as a barometer of economic strength since higher demand often means more construction and manufacturing spending.
Meanwhile, in an effort to help curb pollution and waste, China may elect to ban certain forms of scrap metal imports, including copper. That ban would likely increase refined copper consumption.
Copper traders are pricing in these factors at the same time as the U.S. dollar has weakened. Copper is traded in U.S. dollars, which makes it a more attractive commodity in the current environment. The dollar is down about 7 percent in 2017 through October. As the Federal Reserve has signalled a slower pace of rate hikes, the dollar is not likely to see a quick rebound.
These factors have resulted in a rise in hedging by copper producers and money managers using COMEX Copper Futures and options, according the CFTC’s Commitment of Traders report.
All of this has led to a rise in COMEX Copper Options interest with multi-year highs in the number of open contracts now a regular occurrence. The trend isn’t just in options. Copper futures also reached the ten highest open interest days of the year in August and September.
It’s no surprise to see the surge in both futures and options. As economic factors like demand from China add volatility to the copper market, market participants will look for new and more effective ways to manage their exposure.
That’s why on October 31 we announced plans to launch a new contract that will become a reference price for copper traded in or delivered to China, and is settled against Chinese spot copper prices. It’s also why we’re hosting a webinar to discuss opportunities for traders in copper options.
The copper story will continue, and the futures and options market are the best indication that traders are watching that story more closely than ever.