Copper Futures Contract
The CME (Chicago Mercantile Exchange) Copper futures contract, is one of the most liquid ways to transact physical copper and is only rivalled by the London Metals Exchange copper contract. According to the CME website the price of copper reflects Grade 1 Electrolytic Copper Cathodes (full plate or cut) and shall conform to the specifications (as to chemical and physical requirements) for Grade 1 Electrolytic Copper Cathode as adopted by the American Society for Testing and Materials (B115-00), or its latest revision.
Copper on the CME is physically delivered in a number location in the United States. You can find the delivery points which are listed on the Chicago Mercantile Exchange’s web site. Copper is a base metal commodity and generally trades in tandem with aluminum nickel and zinc.
The Chicago Mercantile Exchange Copper futures contract trades in cents per pound and there are 25,000 pounds per contract. The minimum price increment $0.0005 which equates to $12.50 per contract. The contract trades Sunday – Friday 6:00 p.m. – 5:00 p.m. (5:00 p.m. – 4:00 p.m. Chicago Time/CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT).
The futures contract is traded for active months which are March, May, July, September and December. Trading of an active futures contract terminates on the third last business day of the delivery month, and then switches to the next active month.
How to Trade
The copper contract is used for speculation as well as, hedging purposes. Commercial consumers of copper will purchase forward positions, which are generally offset by copper producers who are looking to lock in futures production price levels. Copper is a mined mineral and the cost to produce copper is relatively expensive. Profitable production of copper depends on several variables including government tax rates and regulations, labor wage rates, the effectiveness of production firms, and cost-efficient mining techniques.
Copper is produced all over the world, and held in storage facilities. There is a price differential to move copper which is generally a reflection of the transportation cost to move from point a to point b. Trading is conducted for delivery during the prompt calendar month and then the following 23 calendar months, and any March, May, July, September, and December falling within a 60-month period beginning with the current month.
Copper prices are generally a reflection of macro growth supply and demand. When growth around the globe is strong, copper prices are generally strong and when growth is weak, copper prices are generally soft. On a more micro level, the price fluctuation of copper is dependent on the housing market. Nearly every house in the United States and Europe has copper in it. Copper is in wiring, piping, heating and cooling.
There are seasonal and geopolitical factors that can affect the price of copper. Most of the global copper supply originates in South America, in countries such as Peru and Chile. This means that season factors such as the weather can affect copper production and transportation. Additionally, copper supply is subject to worker strikes against copper-producing mines as well as government revolts. The largest consumers of copper are the United States and China. The economic health of the world’s two largest economies has a very strong influence on the price of copper.
Copper is a base metal which is used in the production of piping and electrical wires. Copper piping used to be the main source of plumping in the United States, until plastics took over as the main input. Copper prices generally trade in tandem with other base metals such as aluminum, nickel and zinc and can be traded with many commodity brokers. Copper can be influenced by supply which is a function of production mainly from South American countries as well as demand which generally reflects the health of the housing markets.