(Yicai Global) Nov. 12 -- The Shanghai Futures Exchange will unveil its sixth futures contract that foreign investors can directly trade after crude oil international when copper futures land on Nov. 19.

It will join TSR 20 [natural] rubber, low-sulfur fuel oil, iron ore, and purified terephthalic acid, which is used to make artificial fabrics and plastic bottles.

The international copper futures will adopt the international platform, net price trading, bonded delivery and Chinese yuan-denominated trading modes, per the contract and rules the SFE’s Shanghai International Energy Exchange unit released yesterday, China Securities Journal reported.

The biggest difference between the SFE’s existing copper futures contract and the newly-launched one is that the international copper futures price excludes value-added tax and delivered products are from China Customs bonded zone.

China has two copper spot markets now, the domestic tax-levied one and the one in the bonded zone. With the latter’s scale growing ever larger, copper spot trading in the bonded area is becoming active, and many companies have jumped into the market, which demands hedging tools for these transactions, a staffer with the SIEE said, explaining the need to unleash these contracts now.

The bonded-area copper spot market is mainly in eastern China in cities of Shanghai and Tianjin, and in Guangdong, Jiangsu and Fujian provinces, with the scale quite large in Shanghai, the official stated.

Trimming Hedges

The net price trading and bonded delivery of international copper futures will cut companies’ hedging costs and avert risks stemming from VAT rate changes, said Xu Changning, head of the futures business at Tongling Nonferrous Metals Group, adding that the yuan-denominated mode can help companies reduce exchange rate risks in the course of future foreign trade.

The international platform will also grant global investors a full say in setting Shanghai’s copper prices, which will in turn enhance their international influence, Xu added.

The new variety of international copper futures will also raise China’s profile as the world’s biggest consumer of the cupreous metal and greatly impact copper spot transactions at home and abroad, above all when overseas mines, smelters and traders use its contract price as a benchmark for price quotes in spot contracts, said Zhang Jianhui, manager of the Futures Management Department of Yunnan Copper.

China is already the world’s second-largest producer, and biggest consumer and importer of refined copper, public information shows.

The country produced 9.784 million tons of the refined semi-precious metal last year, or 41.24 percent of the global output, according to statistics from the China Nonferrous Metals Industry Association and China Customs. It consumed 12.08 million tons of refined copper last year, 50.72 percent of total global consumption, and its net imports were 3.234 million tons.

Editor: Ben Armour, Xiao Yi