Analysis | LME losing ground in battle for Asian copper as Chinese turn to CME
"A large part of it is the big Chinese hedge funds," said one Hong Kong-based broker, citing the reason for the jump in Asian trades on Comex. "They have trouble getting their heads around the LME’s prompt date system."
Asian traders are increasingly choosing CME Group over the London Metal Exchange (LME) for buying and selling copper, as they seek to cut costs and complexity of trade.
The trend could mean an erosion of Hong Kong Exchanges & Clearing’s (HKEx) dominant market share in its premier metals contract on home turf. The HKEx purchased the LME two years ago for US$2.2 billion.
CME’s Comex copper contract traded volumes during Asian hours have exceeded that of the LME’s three-month contract in more than 80 per cent of trading days over the three months to end-October, an analysis of tonnage traded electronically showed.
While only data over the past three months is available to Reuters, traders say the trend has emerged this year and become more noticeable in the past six months. At stake for the two exchanges is business from a new breed of users in the biggest copper consuming region in the world.
Chinese hedge funds have become a new force in metals markets, evident in a huge Shanghai-driven price rout in March, as their US peers bow out, hurt by higher regulatory costs.
The China funds are turning to the CME for copper as they are finding its monthly contracts cheaper and simpler to use, industry participants said. Many already trade its oil and gold futures contracts.