5 August 2010
The Johannesburg Stock Exchange is extending its existing licensing agreement with the CME Group, the world’s most diverse derivatives exchange, to list rand- denominated copper and silver futures contracts, giving South African investors further exposure to the international metals market.
While listed on the JSE’s commodity derivatives market, and accessible to all JSE equity derivative members and their registered clients, both futures contracts will reference benchmark settlement prices from CME Group’s COMEX – the world’s primary market for trading futures on metals such as gold, silver and copper.
Contracts are priced and settled in rands with smaller contract sizes compared to the standard COMEX contract to make them more accessible to South African investors.
“The introduction of these foreign-referenced metals contracts forms part of the JSE’s continued drive to bring global markets closer to local traders in a way that is both cost-effective and accessible,” JSE senior GM Rod Gravelet-Blondin said in a statement this week.
Forex clearance not required
The listing of these two metals contracts follows on the JSE’s introduction of gold, platinum and sweet crude oil futures in October 2009 thanks to the licensing agreement with CME Group.
As with the existing foreign-referenced commodity futures, local market participants do not need to open accounts with international brokers or require Reserve Bank clearance to transfer forex to meet margin requirements, as all trade takes place locally.
Gravelet-Blondin anticipated strong market appetite for copper and silver futures: “These two highly-traded and industrially important commodities are bound to be of interest to local investors.”
Industrial and construction use
According to the statement, copper, a base metal, is often referred to as the “metal with a PhD in economics”, as its widespread industrial and construction use makes its price very sensitive to global economic trends.
Demand for copper has been impacted by the global recession with usage declining sharply in the US, Europe and Japan. However, copper bulls believe that in the long-term the demand for copper will rise as emerging countries continue to industrialise.
Precious metal; industrial commodity
The silver price is also closely linked to industrial demand as the metal is commonly used in electrical appliances and medical products. The expansion of the middle classes in emerging economies as well as new industrial applications for silver may contribute to a long-term rise in industrial usage.
However, the silver market tends to be volatile due to silver’s dual status as both a precious metal and an industrial commodity: “Silver is somewhat contradictory; investors tend to seek security in precious metals in tough economic conditions, yet during such tough times, industrial usage of silver also slows,” Gravelet-Blondin said.
The JSE’s commodity derivatives market reinvented itself in 2009; previously exclusively an agricultural market, last year the division broadened its focus to include precious metals and energy products.
“The opportunity to work with CME Group has increased the products we can offer market participants and complements our future growth strategy,” he explained.
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