Copper futures are just one of those few financial derivatives which track a inherent stock which in fact has practical utilization at the actual life. Copper or higher quality aluminum (HG) is widely utilised in hot water pipelines, construction materials, powerlines, electric motors and fittings, healthcare and a lot more. Simply speaking, aluminum is applied in businesses that are understood to shape the near future.
Trading top quality aluminum stocks isn’t everybody else ‘s cup of java. The more expensive contract size usually means traders may make it big or lose big within daily ‘s session of gambling. Unlike trading the familiar stocks like indices (E-mini Dow, S&P500, etc.) or money futures contract, trading highgrade copper stocks takes the trader to be diligent in understanding the total landscape of their aluminum store as well as the way a store stands during precisely the moment.
Even for daytime traders, trading highgrade copper futures will call for a great deal of prep to understanding the several elements which may play a part in forming the costs of the bottom alloy. At the finish of this all, inspite of the huge quantity of leg work that has to be performed, trading highgrade copper stocks may be profitable if your trader can approach the aluminum marketplaces together with subject with precision.
Copper is reportedly among a small number of commodity stocks which has got the capacity to predict turning points in the worldwide financial increase. Some go so far as to telephone aluminum, the alloy using a PhD. To get a commodity which has this type of higher effect on the international playing field, trading aluminium stocks without before all else understanding the facets or challenges which can come with trading that this base-metal futures often leads to losses, even something a trader might have easily avoided had they paid attention into the present financial problems.
For your afternoon trader and also for futures traders, listed here are the most frequent challenges of trading highgrade copper futures.
#1. Copper stocks and also the worldwide market
Copper is an increasingly important product to the worldwide market. Industrial metals are among the very sensitive metals and will be vunerable to the financial trends due to their significant applications. From construction to fabricating, copper is among the very widely used alloy since it’s a fantastic conductor of electricity and heat. Because of being resistant to rust, aluminum is found in pipes, heating and heating system, both in residential and business industries.
A stable upward cost trend in aluminum stocks generally suggests a growing market. But aluminum futures tendencies aren’t as straightforward as it appears. Instead, aluminum stocks often lag or lead the pace of market, and it is definitely an important aspect to remember. Traditional wisdom informs that rising copper costs indicate a growing market and decreasing copper costs indicate a recession. However, based upon the financial cycle that could change and the association isn’t how it is made up to be.
Copper costs leading the global GDP
The before all else chart above shows how copper costs lead the global GDP into the troughs and peaks. The two areas marked on the chart shows copper costs rising ahead of the GDP, which eventually see’s the global GDP rising. Similarly, after forming a peak, copper costs start to decline sharply which is later followed by weaker global GDP.
For the day trader, it is essential to understand at what stage of the business cycle the world is in currently. Typically, the peaks and troughs in the copper costs can play a role in helping the trader to determine at what stage of expansion or contraction the global economy is at. This is determined by looking at the trends in both the global GDP as well as the long term trends in the copper costs.
#2. Copper production trends
The top five countries leading copper production are Chile, China, Peru, United States and Australia. The production trends can play an important role on the supply side of the marketplaces. Copper costs have been in a downtrend for the most part of 2015 and managed to regain some of the losses in 2016. However, copper costs remain well beneath the $3 per pound region on account of reduced demand from China.
Following production trends is an important factor when trading high grade copper futures as the copper costs is influenced by rising or falling production levels in relation to the projected demand. When following copper production trends, traders need to focus on weather and other factors that can disrupt production. For example, Chile’s production fell 50 tonnes in 2015, from a year ago as the country was hit by earthquakes and heavy rains.
On the production, there has been a slow by steady decline especially as discovery of high grade copper deposits have become increasingly less frequent. The underground mine production capacity also plays a major role as reduced production could result in shortage of copper.
Strikes at the mines also play a major role in shifting the cost dynamics in high grade copper costs. Mining strikes are nothing new to the marketplaces and can affect in the short term the supply of copper. Mine strikes typically last for a few weeks to a month at the most but can tend to impact the short term costs of copper futures.
As of 2015, the identified copper resources have been said to be heavily concentrated in South America, accounting for nearly 39% of the world’s identified copper resources.
World copper resources-2015 Source icsg.org
As copper futures traders, it is essential to keep an eye on the region and also the individual countries (Chile, Peru, Brazil and Mexico) in South America by following potential supply boost or decreases that could bring short term impact on copper futures costs.
#3. Copper usage by sectors
Because of the wide reaching uses of copper, the seasonal cycles in the various industries can also influence the cost of copper futures. For high grade copper futures speculators it is a challenge to keep track of the sector wise business cycles. Copper is a widely used element in transportation, heating, telecommunications, electrical purposes and so on. Not all industries behave in the equal way and there are times when a downturn in one industry could be offset by boost demand in another industry.
For copper futures traders, it is always important to keep track of the broader economic factors that can influence the cost of copper. Among the various industries, copper usage is heavily consumed by the housing construction sector.
Copper usage by industry (Source LME, CRU group)
Copper futures day traders can look at short term cycles in the U.S. construction sector to ascertain the potential demand for the metal. Looking at the economic reports such as the ISM’s manufacturing PMI report released every month can offer traders insights into how particular industry sectors are performing and also gives an outlook on the coming month’s business prospects.
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#4. Demand from China
Demand for copper from China is one of the biggest single factor that can heavily influence the cost of copper futures. China is considered to be a major participant in the world commodity marketplaces which in turn tend to influence the world’s terms of trade and even affecting inflation. Day traders in the copper futures marketplaces should understand the scale of China’s impact on the global commodity store to help better assess the balance of risks for costs. Copper ranks the third in the list of commodities heavily consumed by China.
China, global commodity imports 2009 – 2010. (Source United States Department of Agriculture, United Nations COMTRADE database, World Metal Bulletin Statistics, IMF
It is estimated that China’s consumption during 2010 accounted for nearly 40% of base metals, reflecting the rapid growth in the region, which has started to slowdown over the past few years. China’s demand for copper is accounted for by the heavy infrastructure development and investment in the construction sector during the rapid growth years which helped to keep copper costs in a steady uptrend.
#5. Mining companies
Copper futures day traders also need to go to the source of the commodity, which is mining to obtain a better idea on the supply/demand dynamics. Some of the major mining companies to keep an eye on include Cochilco (Chilean Copper Commission) from Chile, Rio Tinto Group, Freeport-McMoRan Inc.. These mining companies are heavily invested in the mining sector which also includes mining for copper. At regular intervals these companies release key store data and forecasts which can affect the copper futures costs in the near term and could potentially trigger a shift in trends as well.
With Chile ranking as the top copper exporting nation, Cochilco’s industry reports and store trends are some of the key reports to keep an eye on if you want to trade copper futures.
#6. Trading the copper futures
Finally, the biggest challenge in trading copper futures is of course, the commodity itself and the technical or fundamental approach used to day trade the high grade copper futures marketplaces. Traders should bear in mind that the minimum tick size in Copper futures is $0.0005 having a tick value of $12.50. The day trading margin requirements for copper futures are slightly higher than the easy and higher liquid futures instruments such as the E-mini indexes or currencies.
Trading copper futures purely based on a technical approach is risky as the trends in the store tends to be strong and entering a trade without looking at any potential upcoming store reports could mean entering on the defame side of the store with the potential to obtain whipsawed. There are days when clear intraday trends are formed on the copper cost charts and then there are days when copper cost simply trade in a range. Therefore, day trading copper futures requires a bit more homework from the futures trader to account for all the potential possibilities ahead of entering a trading position.
While trading copper futures might pose a few challenges, the rewards can also be very encouraging for the day trader especially if they pay careful attention to the fundamental factors that shape the copper futures marketplaces on a day to day basis. With a decently priced tick size, trading copper futures, part of the commodities/base metals marketplaces can offer impressive rewards.