DGCX launches copper futures

The Dubai Commodities Exchange (DGCX) on Thursday announced the launch of copper futures. The region’s first ever copper contracts will go live on April 20 and will be cleared by the Dubai Commodities Clearing Corporation.

Over 600,000 tonnes of copper is consumed annually in the Middle East. The demand for copper is expected to continue to grow across the region. The introduction of this new futures contract is the result of both favourable market conditions and demand from market participants.

DGCX has also established a Copper Advisory Group, an informal body composed of copper market players that provides the exchange advice on the design of the copper futures contract and facilitate market feedback. The group includes companies in the copper-consuming industry like Ducab and Lucky Group besides DGCX members.

The DGCX copper futures contract is expected to provide both retail and institutional investors with the mechanism to hedge their risks against price fluctuations in copper. The contract will also offer arbitrage opportunities to market participants engaged in taking advantage of the price differential between exchanges.

Ahmed Bin Sulayem, Chairman of DGCX, said: “Under the regulatory guidance of the Securities and Commodities Authority (SCA), DGCX has contributed towards the diversification of the region’s financial services by providing risk management and investment tools.  The DGCX copper futures contract adds to the opportunities available for investors in the region in diversifying their portfolios away from traditional assets such as equity and real estate as futures products allow for financial gains when markets move in either direction.”

Samir Shah, Chief Business Officer of DGCX said: “Fluctuating demand from across the world, and its sensitivity to today’s uncertain economic growth prospects, has increased price volatility in copper. DGCX has been working with both its members and market participants to fully understand their requirements to manage price risk in base metals. By offering arbitrage opportunities, competitive margins and transaction costs, combined with the benefits of transacting and clearing business from within the UAE, our copper futures contracts will be attractive for both retail and institutional investors.”

The DGCX copper futures contracts will trade from 8:30AM to 11:30PM Dubai time or 10:00AM to 1:00PM India time or 12:30PM to 3:30AM Singapore time. The contact is sized at five metric tonnes (MT), with the contract price quoted in US dollars per MT. The contract is cash settled against the New York futures settlement price for copper to maximize its financial use. The 5 MT contract size was a result of consolidated feedback from the physical hedgers, investors, and cross-exchange participants. The size of the contract and pricing mechanism is expected to boosts its arbitrage trading potential.

DGCX has institutionalised market-making mechanisms to ensure high liquidity and competitive price spreads are provided through each trading day. Another advantage is that the exchange offers clearance of all trades through the Dubai Commodity Clearing Corporation (DCCC), removing counterparty credit risk and providing guaranteed settlement to each transaction contract. Local clearance also ensures investor funds do not leave the region, including for clearing and settlement.
 

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