Chicago 12/05/2016 - CME Group has been aggressively growing volumes and market share in the copper sector via a strong push into Asia, industry experts tell FastMarkets.
"Where London Metal Exchange volumes have declined over the last year, copper volumes on Comex have surged. One of the big reasons is the increase in Asian participation," Frederick Demler, executive VP and global head of metals futures at INTL FCStone, said
Comex copper's Asian volumes were up 29 percent year-on-year in March, he noted.
The Chinese also find it convenient to trade the spread between the Shanghai Futures Exchange (SHFE) and the relatively simple American-style Comex contract, Demler noted.
"The market really likes the clarity, transparency and easiness of the Comex copper contract," Young-Jin Chang, CME executive director for metals, told FastMarkets in an interview.
Formally launched in 1988, Comex copper is one of the best-established contracts traded on the CME but until fairly recently it was mainly focused on North America. But over the past year the contract has seen strong growth - open interest (OI) and volumes were up 12 percent and 16 percent in 2015.
And the momentum has continued through the first quarter of 2016, with average daily volumes up 13 percent compared with the first quarter in 2015.
"If you look at just the first quarter, we had a handful of record OI days," Chang said, noting that OI on April 14 exceeded 206,000 contracts - the fifth OI record day during 2016.
"This is a big contract that been around for a very long time - it's not very common to see multiple OI records in a row," she added.
Meanwhile, CME's global copper market share increased to 17 percent in 2015 from 15 percent in 2014, according to CME data compiled by FastMarkets.
This growth comes partially at the expense of the LME, which reported that the average daily volume for its metals contracts slipped nine percent year-on-year to 636,518 lots in the first quarter.
The LME's owner, Hong Kong Exchanges and Clearing (HKEX), posted Ebitda of HK$248 million ($32 million) for its commodities business in the quarter, a 23-percent decline, due to a drop in LME trading fees and volumes.
But the HKEX will not lose market share without a fight. It is considering an ambitious plan to build a China mainland spot commodities trading platform and could launch a London-Hong Kong Connect programme - both of which aim to attract more Asian financial investors.
The LME is also in the middle the controversial process of reforming its warehousing rules. In an attempt to cap rising warehouse rents and free-on-truck (FOT) rates, the LME has outlined several ways of regulate warehousing and physical delivery.
Proposed moves include a fixed annual adjustment to rates corresponding with inflation, a freeze on the current rates for corresponding year(s), a transitional rate reduction and an immediate rate reduction – all of which would act as a cap on future fee rises. But these proposals have been met with some resistance, particularly from warehouse operators.
CME has a much smaller warehousing footprint, with all of its sheds located in the US. But the exchange is quick to point out that its rules should prevent long queues to remove metal.
If lines are longer than 20 business days at any delivery point, the warehouse must justify the queue to an independent CME committee that has the authority to stop the warehouse operator from charging rent.
There has been a lot of speculation recently that CME might eventually look to register warehouse in Asia or Chile. But a push to expand copper warehouse stocks in other jurisdictions would come with many challenges.
Eventually, CME would face the same types of problems that the much larger LME system is dealing with today, several sources noted.
(Editing by Tom Jennemann)