Comex set to begin trading high grade copper contracts

A high grade copper contract will be introduced July 29 by the New York Commodity Exchange (Comex) in response to a growing supply of, and demand for, Grade 1 cathodes.

Hugh Sigmon, Comex’s director of metals marketing, in Toronto to visit with a number of Canadian producers and consumers of the base metal, said Grade 1 copper comprises an estimated 70-90% of world primary production. New technology in copper production and utilization during the past 20-25 years, he said, has spurred both the supply and demand sides for the higher grade material. The wire and cable industry, he said, is a major user of Grade 1 copper, whereas the standard grade copper currently traded on Comex is used more in the brass industry.

Trading a Grade 1 contract will allow Comex to compete more effectively in the cash market and against other commodity exchanges, such as the London Metal Exchange, which basically trades high grade contracts. Whereas the Grade 1 contract allows only Grade 1 cathodes for delivery, the current Comex standard copper contract has Grade 2 cathodes as the base- deliverable grade and allows for delivery of other grades at fixed premiums and discounts listed in the contract. Higher copper prices

Copper topped $1.40(US) per lb in New York early this year in a bull market which has seen the prices of several base metals aim skyward. According to Comex, a problem with the standard contract has been that premiums and discounts have not correctly reflected the volatile cash market.

Fixed premiums and discounts have created an economic disincentive to put Grade 1 copper in the Comex warehouses and may have led to a drawdown in Comex stocks.

The new contract will compete more effectively with the cash market for higher grade copper, Sigmon said. Users of the contract can lend idle inventory into the market, thereby offsetting their carrying charges, and be guaranteed to receive high grade copper in return. The result, he said, should be to put stocks back into Comex warehouses. Among the producers Sigmon visited — basically to pass along greetings and answer any questions about the exchange — were Noranda Inc., Inco Ltd., Falconbridge Ltd. and Hudson Bay Mining & Smelting, while the consumers or users included Canada Wire and Cable and Northern Telecom.

“We don’t have enough contact with the Canadian market,” he said, adding that a trip to Toronto allows him to drop in on most of the major players (with their head offices located in the city). New contract taking over

With both high grade copper futures and options set to begin trading July 29, Comex expects to phase out the standard contract over the ensuing months. Each new contract will comprise 25,000 lb of Grade 1 copper cathodes.

The exchange received approval to trade Grade 1 copper in 1986, but decided to postpone introduction of the new contracts until this summer.

Comex is the world’s most active metals market, trading in gold, silver, copper and aluminum futures and in gold, silver and copper options.