For those new to copper investing, keeping track of copper prices can at first be a little confusing.
Copper traded on the London Metal Exchange (LME), or LME copper, is priced per tonne, but COMEX copper, or contracts traded on the COMEX division of the New York Mercantile Exchange (NYMEX), are priced per pound.
Both markets provide valuable information for those following the copper market or investing in copper stocks. Here’s a short overview of both COMEX copper and LME copper, and why it’s important for investors to understand what they are.
As mentioned, LME copper refers to copper traded in London, where options and futures contracts for industrial metals are traded. More specifically, LME copper may refer to spot LME copper prices or prices for futures contracts on the London exchange.
LME copper futures contracts may be set at up to three months with daily expiration dates, or between three and six months with weekly expiration dates. There are also longer contracts of up to 123 months.
Contract prices are quoted in US dollars and are sold in lots of 25 tonnes. They may be settled via physical delivery between a network of LME-approved warehouses around the world.
For this reason, LME copper may also refer to inventories of copper cathode in LME warehouses. In addition to acting as a futures trading exchange and providing reference prices, the LME acts as a physical market of last resort for producers and consumers of a number of metals, including copper.
In other words, those in the copper industry may sell LME copper during oversupplied markets and draw on LME copper inventories in the event of a copper shortage. Some market watchers look to rising and falling inventory levels on the LME as an indicator of global supply and demand conditions. However, it’s important to note that physical delivery is the exception rather than the norm.
The exchange also publishes daily reference prices for LME copper and other metals that are used by market participants. Overall, the exchange is predominantly used to either hedge or take on price risk.
Headquartered in New York with offices all over the world, the COMEX is a commodities futures exchange similar to the LME. Both the NYMEX and the COMEX, which merged in 1994, are owned by CME Group (NASDAQ:CME).
Like LME copper, COMEX copper can also refer to spot copper prices and copper contracts traded on the COMEX. As mentioned above, copper contracts are priced per pound on the COMEX, with listed contracts available during the current calendar month, the next 23 calendar months and any March, May, July, September or December within a 60-month period of the current month.
Contracts are also block-trade eligible if the amounts are above minimum thresholds. These types of trades are privately negotiated and executed apart from the public market. They are only open to eligible contract participants as defined by the Commodity Exchange Act.
Copper cathode must conform to specific chemical and physical requirements in order to be traded on the COMEX. COMEX copper futures are settled via physical delivery upon expiration, but COMEX E-Mini copper futures are cash settled.
As with the LME, many banks, trading firms and commercial hedgers use COMEX copper for risk management purposes, and CME Group prides the COMEX on being “[a] global benchmark for copper prices” used by respected indices such as the Bloomberg Commodity Index.
The importance of commodity exchanges
Of course, the LME and the COMEX are far from the only commodities exchanges on which copper is traded. The Shanghai Metal Exchange is another notable example, and with China consuming 40 percent of the world’s copper, it is becoming increasingly important.
What’s more, Stefan Ioannou of Haywood Securities has noted that it is near impossible to get complete transparency on copper prices. “Information on LME volumes is readily available, but keep in mind, the inventory is only one piece of about a six- or seven-piece pie,” he explained in a 2014 interview. “It does give a bit of an indication, but there’s also the COMEX, there’s the Shanghai, there are mine inventories, there’s recycling and then there are all the non-bonded stockpiles as well.”
Still, prices for LME copper and COMEX copper contracts, as well as information on inventory levels, can be a valuable piece of the puzzle for those making investment decisions in the copper space. For example, those investing in copper stocks may want to look at whether a company’s mining project is likely to be economic at current and/or forecasted copper prices.
This is an updated version of an article first published by the Investing News Network in 2015.
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Securities Disclosure: I, Sivansh Padhy, hold no investment interest in any company mentioned in this article.
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