Harriet Hunnable is the managing director for metals products at CME Group. She sat down with editor/producer Nicole V. Rohr to discuss copper futures, which hit a record volume of 127,276 contracts on April 10. Hunnable also discussed the benefits of average price contracts, like CME Group’s new copper calendar swap contract launched on March 12.
Q: What is so intriguing about copper, and how does it differ from other metals?
A: Copper is a very good indicator of industrial production and we’re very focused today on where the growth is strongest, and where there is reception. It provides a commodity index for industrial activity. And the other thing about copper is it’s a liquid contract, and people are very familiar with copper trading in Asia, as well as in Europe, the Middle East, Africa and the United States. So you’ve got a very broad appeal as an established market globally. There’s a big Asia story around copper — it’s a very well known market for trading.
Q: In terms of market participants, who generally expresses the most interest in copper futures?
A: We have a very good, wide set of clients and we’ve seen growth and activity across the different groups in copper. So, be that individual traders or institutional hedge fund activity or commercial activity — we’ve seen growth from all of them in managing price risk or taking on exposure to this market. So, I would have to say that we have seen activity across all of those client groups at CME.
Q: Were you expecting copper futures to hit a volume record when it did, and what factors explain that surge?
A: We didn’t make predictions on prices or on actual levels of trading but we have seen a trend throughout 2011 of increasing activity on our copper contract on CME, and that is continuing to grow and it’s broken records in trading volume on particular days in 2012. And we’ve seen that there’s more potential for that activity to grow, given the wide range of participants that we have and the fact that we offer such good liquidity to people that want to trade. So we’re seeing a real interest in the metal, but also in trading on CME’s Globex platform. They’re finding liquidity on our platform, and that’s true for the Asian market activity, as well as European hours and U.S. hours.
Q: Do you see these trends continuing in 2012?
A: We do, and we also want to be more of a partner in the OTC market. For the OTC market that trades copper, they came to us and said, ‘Listen, can you please clear swaps on the average of the month and clear options on the swaps?’ And, we said ‘Well, yes.’ We see the OTC market as a distinct market and that market needs a central clearer, so we’re very pleased to be able to provide a service to the OTC market, as well.
Q: What needs does a calendar swap contract fulfill for commercial entities?
A: The majority of mining companies and many commercial consumers of copper buy on the average of the month. They like to average out their price exposure. While futures provide a way of managing price risk, most of the physical contracts are on the average of the month. So, we wanted to make sure that where they are entering the OTC trades and they want to have central clearing, that we can provide that. So, it’s really to fit the needs of commercial [entities] that have average price risk and would like to have those bilateral trades cleared onto CME.
Q: It takes time to develop interest in a new product. In your opinion, how has the copper calendar swap contract fared so far?
A: We’ve had good reception and we cleared our first trade. So, we are optimistic that over the course of this year, we’ll see that activity grow as well as people become more familiar with the ability to clear that through CME Group.
Q: What about options trading for copper in 2012?
A: Options trading on Comex copper is low and we would like to see that market develop more. If you see our trading on the floor on Comex and the electronic trading on Globex and the cleared business for gold and silver, it’s much bigger than the activity that we’ve had on copper, so we look to grow by providing more investment, to bring people to trade copper options on the floor as well as on Globex, and to clear them through Clearport. So, over the next 18 months, we’ll be investing more in the options side of things.
One of the larger players in the base metals industry said to me, ‘I wish we had what you provide the gold industry with in terms of option liquidity. I wish we had that.’ We think there’s an opportunity there and we’ll be investing in that.
For more information on copper futures or the copper calendar swap contract, go to the CME Group website at http://www.cmegroup.com/trading/metals/.