PMEX Copper Futures

September 2013

Pakistan Mercantile Exchange Limited

9th Floor, PRC Tower, 32-A Lalazar Drive, MT Khan Road, Karachi. Voice: +92 21 111 623 623, Fax: +92-21-5611263, 5610505 Email: info@pmex.com.pk, website: www.pmex.com.pk

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INTRODUCTION Copper is one of the oldest known metals being used by humans. Copper is ductile, corrosion resistant and most importantly an excellent conductor of heat and electricity. Coppers chemical, physical and aesthetic properties make it a material of choice in a wide range of domestic, industrial and high technology applications. Copper is a fairy common element yet all the copper present on earth is not economically extractable. According to U.S. Geological Survey reported a current total reserve base of copper in potentially recoverable ores is 1.6 billion tonnes, of which 950 million tonnes was considered economically recoverable. Copper is also one of the most recycled of all metals. Recycled copper (also known as secondary copper) cannot be distinguished from primary copper (copper originating from ores), once reprocessed. GLOBAL COPPER SCENARIO The demand for copper continues to grow as the world refined usage has tripled in last 50 year. Main consumption of copper is by the sectors such as electrical and electronic products, construction, transportation and consumer products.

There has been steady growth in the copper mine production in the recent years and this year the expected production levels are around 17.5 million tonnes which were close to 16 million tonnes in year 2011 i.e. over 9% growth in two years.
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Refinery production is expected to be around 21 million tonnes this year which was 19.6 million tonnes in year 2011 i.e. 7.5 growth. Almost 3.6 million tonnes has come from secondary copper production (copper recycling). The largest producer of mined copper is Chile, which produces around 33% of the word mined copper whereas China has the largest refining capacity of copper ore and is currently producing more than 26% of the refined copper.

The usage of the refined copper is expected to increase by 4.1% this year compared to year 2011. The expected usage is around 20.6 million tonnes in 2013 which was 19.8 million tonnes in 2011. China is the biggest consumer of copper with 40% consumption of total global refined production. Copper Trading: Major product categories of copper traded internationally include: Copper concentrates Copper blister and anode Copper cathode and ingots Copper scrap

Changes in domestic policies by large producers e.g. export quotas are most impactful also import duties and sanctions enforced by major consumers affect the international trade.
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Copper Futures Trading: Copper is one of the most actively traded commodities on futures exchanges. It is listed on various exchanges around the world but following exchanges contracts are used as pricing benchmarks in the global trade. 1. London Metal Exchange (LME). 2. New York Mercantile Exchange (NYMEX), a division of CME. 3. Shanghai Metal Exchange (SHME). Other than the above exchanges, copper has also been traded successfully on the following exchanges: 1. 2. 3. 4. Multi Commodity Exchange India (MCX). Dubai Gold & Commodities Exchange (DGCX). National Commodity & Derivative Exchange India (NCDEX) Johannesburg Stock Exchange (JSE).

Factors Affecting International Copper Prices Global economic climate. Energy: coal is the fuel chosen to power main copper mines and processes, and stringent climate change policies increase costs and therefore prices. Recourse Nationalism. Labor Policies. Peace and security is also a key factor. Rate between imported inputs and domestic input costs affected by the currency strength of the producer.

Price: US Dollars per Pound Page 4 of 7

PAKISTAN Pakistan has decent amount of copper reserves but due to political and some operational issues the extraction is not at its full potential. Pakistan has no refining facility and most of the extracted ore is being exported to China. In year 2011 almost 11 thousand tonnes of copper ore had been exported. Pakistan fulfills its demand mostly from import of copper cathodes and by recycling the copper scrap.

IMPORT

FOUNDARY

MANUFACTURING

REFINED COPPER SCRAP

SEMIS FINISHED PRODUCTS

RECYCLING

Majority consumption of copper in Pakistan is in following sectors: Electrical Appliances i.e. electrical motors, fans, washing machines etc. Electrical Cable Manufacturing. Construction. There has been an extraordinary hike in the imports of copper in last decade, almost 38 times which symphonize the growth of the electrical and other associated manufacturing sectors in Pakistan.

Source: Pakistan Statistical Year Book 2012

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PMEX COPPER FUTURES Keeping in view the importance of Copper in both global and domestic economy, PMEX is in the process of listing copper futures contract based on the prices of CME Copper Futures Contract. The contract will be cash settled in Pak rupee, however the price quotation will be in US dollars, which will provide the local market participants an international flare and ease of trading as the copper is not only quoted in US dollars but most intl deals are priced in US dollars as well. The key market players i.e. hedgers, investors and speculators play their important and due role for the success of any futures market. As explained earlier the majority consumption of copper in Pakistan is by electrical sector i.e. electrical cable manufacturers, electrical appliances manufacturers etc. are the potential hedgers. Also the power companies i.e. KESC, Wapda place their orders of high power transmission cables and other electrical instruments on international prices of copper so they could also benefit by conveniently hedging themselves. It will attract those investors as well who are currently trading copper futures through unregulated forex houses. PMEX will provide them a safe, secure, transparent and convenient trading platform. Currently these forex houses transmit huge sums of foreign exchange to their foreign counterparts to enable their local investors to trade in copper or other commodities. As these houses are not regulated by any authority, at times they close their operations and disappear, depriving investors of their money.

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Appendix Sources: Pakistan Statistical Year Book 2012 International Copper Study Group Copper Development Association Inc.

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