On October 23, the China Securities Regulatory Commission (CSRC) approved the trading of the international copper futures contract of the last-period energy subsidiary of the last-period energy. The international copper futures contract has been listed on the Stock Exchange since November 19,2020. Copper upstream and downstream physical industry chain, trade and integrated service providers, futures industry, etc. began to explore the internationalization of copper varieties may bring opportunities and changes.

Objectively, as the copper industry chain pricing highly depends on the LME, Shfe, COMEX mainstream market formed near far month benchmark price, add international copper plate, the industry participants demand, activity, liquidity potential of the most discussed. From the perspective of the perfection of the pricing function of the copper futures market, the opening of the futures companies'business scale to the outside world, and the two-way opening of the country to the Internationalization of the Renminbi and financial markets, the introduction of international copper futures has a strong necessity and market basis.

1.Shanghai copper has the key elements to increase the international variety

The opening rate of futures market has been quickened, and 5 international varieties of crude oil, iron ore, PTA, no. 20 rubber and low sulfur fuel oil have been introduced in China. The core of the trading system of international varieties includes international platform, RMB valuation, net price trading and bonded settlement, that is, allowing domestic and foreign investors to participate together, and RMB valuation and settlement, to allow the currency other than the currency of the valuation to offset the margin; to adopt the international market net price transaction, the quotation does not contain the tariff, the value-added tax; to rely on the bonded warehouse for physical delivery.

Among the listed international varieties, there are three varieties of energy operation in the last period, and a lot of experiences on variety operation and trading rules and systems are summarized, and Non-ferrous metal is the earliest listed in China, the strongest continuity, price discovery and hedging functions play the most mature. Shanghai copper also early in the end of 2010 launched a bonded delivery warehouse, bonded delivery business pilot work, bonded Warehouse Financing Business Smooth.

At the same time, entity legal persons and professional investors and other copper traders have a deep understanding of the domestic and foreign copper futures markets and cross-border trading, and have rich practical experience, increasing the parallel between international copper futures and Shanghai copper futures, in familiar with the rules of varieties, pricing judgment, exploration and practice of cross-market strategy advantage is obvious. As the price bond between Shanghai copper and LME copper, international copper futures can give the market a better window to observe the listing of international varieties and grow up slowly.

2.The listing of international copper futures will help improve the pricing mechanism

At present, the domestic and foreign copper futures market runs smoothly, which provides the international copper futures with favorable experience, but after the international copper futures listing, the transaction demand is limited, the market share is not big, the liquidity generally also becomes the main question which the market cares. The author thinks that the listing of international copper futures is helpful to perfect and make up the domestic customs bonded warehouse and the pricing mechanism of copper around East Asia and Southeast Asia.

At present, the physical delivery system of Luntong and Shanghai copper does not effectively cover China's bonded area inventory, nor does the premium for copper in Asia form an open, authoritative and efficient market pricing. Next, the depth of the Commodity Futures Exchange's pricing function must take root in a wider storage network and provide a higher level of premium pricing for spot participants. This has become the main direction for domestic futures exchanges to internationalize and compete with international first-class futures exchanges in the field of commodity futures.

The LME has no bonded business in China for its warehouse network. On the basic research of supply and demand, as a large importer of electrolytic copper, there is a great demand for stock forecasting and tracking in China's bonded area. China's bonded zone stocks, south Korea/singapore LME stocks and related hidden inventory has undoubtedly formed the world's largest copper trade logistics transit, is an important Chinese copper imports "reservoir. ".

In contrast, the last period is more "geographical" , with international copper futures listed as the background, the expansion of bonded warehouse construction is the most important, is the key to international copper operations. For the foreign cooperative warehousing institutions, the non-bonded delivery of the last period has been allowed to enter the World Tianwei logistics, and the logistics cooperation with the international warehousing institutions may be accelerated after the international copper listing; for the domestic bonded warehouses, china Bonded Area Warehouse Can Borrow International Copper Futures listed "Dongfeng" , actively incorporated into the last registered network, enhance goodwill, enhance competitiveness.

The core of the pricing competition of futures exchanges is the real goods flow. The firm Internationalization Direction of the previous period, the solid construction of the bonded warehouse network, the integration of bonded inventory data, and the reliance on bonded delivery further facilitate the two-way logistics of the copper market inside and outside, based on the "domestic customs" , and Shanghai copper parallel international copper futures will be worthy of our expectations for the development of space. International copper futures may not be the "shadow market" of LME and Shfe, it has certain pricing independence, and it may form a market premium with Shanghai copper, forming a new arbitrage combination of "LME international copper -- Shanghai Copper" , more successful to attract domestic and foreign customers to participate in the market.

3.International copper futures must be denominated and settled in RMB

Traders have a strong demand for bonded copper premium, and the smooth operation of international copper futures is likely to form an open and transparent bonded copper premium. As the current position premium is quoted in US dollars, the market is concerned that the use of the RMB as the base currency may reduce the interest in international copper futures trading, and at the same time, it is not conducive to the development of overseas customers in the early days, but international futures must be firmly denominated in local currency.

From a broad perspective, China is the world's largest importer of commodities, and the trading rankings of the three commodity exchanges in the global derivatives market are quite outstanding, the opening of China's futures market to the outside world calls for the steady promotion of the strategic layout of the Internationalization of the Renminbi market. From a small point of view, the smooth functioning of international copper requires long-term construction, and the absorption of foreign participants "from scratch" and "from small to large" , the ready participants of international copper futures are domestic customers, and will serve domestic customers mainly for a long time, while there is also a great demand for international copper futures denominated in RMB from copper-related customers who do not have foreign trading ability and exchange restrictions.

The long-awaited international copper futures denominated in Renminbi will become a reality, smooth bonded delivery will provide new market tools for small and medium-sized copper-related entities, and international copper futures will lower the threshold for cross-market trading, it also helps to increase market liquidity.

4.Futures companies must attach importance to international listing

From the perspective of futures companies, China's financial services sector has been deepening the opening up, the CSRC has approved the first foreign-owned wholly-owned futures companies. Therefore, more proactive use of policy, exchange platform, deeper participation in the existing, potential multi-level derivatives market system, we will strengthen the promotion of international varieties, actively open up overseas trade channels and gather overseas trading clients, and make efforts to expand our traditional brokerage business to the international "arena" , taking international varieties and overseas channels as our grasp, to accelerate the accumulation of competition overseas derivatives, commodities market core competitiveness. Comparatively speaking, the international copper futures listing advantages are obvious, there is independent development of the market space, futures companies should increase the support for international varieties. 

Source: Futures Daily