On January 20, 2021, the standard warrants for 100.446 metric tons of SPCC-ILO Grade A copper produced by Southern Copper Corporation were officially created by Shanghai Yangshan Free Trade Port C. Steinweg Logistics Co., Ltd. This marks the first registration of standard warrants for bonded copper futures since the contract was listed for trading on the Shanghai International Energy Exchange (INE).
This shipment of copper cathodes was purchased by Rich Fortune International Industrial Limited (“Rich Fortune International”) through an overseas copper trading house, arriving at the Yangshan Special Comprehensive Bonded Zone in early January 2021. It then underwent the inspection of Yangshan Customs, the load-in inspection by the designated delivery warehouse, verification by INE, and quality checks by the Shanghai Customs Industrial Products and Raw Material Testing Technology Center before registration. The head of Rich Fortune International noted that the creation of these warrants lays a solid foundation for the company’s engagement in the physical delivery of bonded copper futures. Rich Fortune International is reported to plan to take part in the very first delivery of bonded copper futures, which will take place in March 2021.
Market observers believe that INE’s bonded copper futures has made a strong showing within merely two months of listing. The creation of the first standard warrants by Rich Fortune International, a Hong Kong-based company, indicates that industrial enterprises—and overseas participants in particular—are recognizing and tapping into the functions of the product. It also means that the various designs and processes for bonded copper futures are now being tested in practice.
According to Rich Fortune International, bonded copper futures caters to the tax-exclusive markets outside Chinese customs—including on-shore bonded areas and the markets of countries and regions in the Asia-Pacific time zones—and reflects international supply and demand. As a new, efficient, and transparent market, it provides investors with an added choice: businesses may compare the prices of the SHFE copper futures, INE bonded copper futures, and LME copper futures, and engage in spot trading at the most favorable price. In addition, bonded copper futures’ RMB denomination makes for an efficient trading, clearing, and delivery process, removing the uncertainties businesses may have in foreign exchange conversion, thereby helping them avoid foreign exchange losses and fluctuations.
Since its listing on November 19, 2020, the market for INE’s bonded copper futures has been generally stable, with a steadily expanding participant base and active involvement of overseas institutional clients. INE’s bonded copper futures price is closely related with the international spot price, and the price correlation is as high as 99%, attracting greater market interest in this product. Once the trading rules and processes for this product are better understood by market participants, the trading volume, open interest, and the number of outstanding warrants will further increase and this product will be more effectively utilized. As of January 20, 2021, the single-counted trading volume, turnover, and highest daily open interest in bonded copper futures have reached 780,700 lots, RMB 201.545 billion, and 23,400 lots, respectively.
An INE official in charge of delivery activities said that physical delivery has been a longstanding priority for INE and is under continuous improvements. INE has held a series of training sessions to offer market participants a comprehensive introduction to the bonded copper futures. Special attention is given to explaining how to perform the various tasks relating to deliverables under a particular customs status, and what to watch out for in terms of regulatory compliance. Moving forward, INE will closely monitor investor needs to streamline the delivery process and optimize the location of delivery warehouses.