Copper (equity) newbie questions

[sinner]

Hi peoples,

I am interested in copper investing and have some questions, but as a total newbie in this area I need some advice from ASFers who might have a better idea than me. People with copper equity experience, not just in the derivatives or warehousing sense.

Now don't get me wrong, I am not bullish copper at the current price. But based on various research I've been conducting for my own personal interest recently, I am thinking if prices follow their normal seasonal basis then maybe prices at the end of this year will be more interesting for copper bulls. The timeframe of interest would be a holding duration about 9-12 months.

To that end I've been examining the various instruments and possibilities for expressing my view in the market.

Ideally I would like to buy long-dated call options on warehoused physical copper, but it seems such instruments (iShares and JPM want to start physical copper ETFs) are almost, but not available for trading yet.

So should I be buying (options on) copper futures for Sep/Dec delivery on the COMEX or LME? Then I will need to hedge my currency risk!

This leaves Aussie copper producers (since I don't see copper futures listed on the ASX website). The obvious choice being BHP (mostly based on liquidity). But my experience in this field is minimal. Some preliminary research does indicate a decent correlation between BHP and the AUD copper price over a good time basis, but my mind still has the nagging question of equity exposure when what I want is copper exposure.

Fundamentally, how rational is it to use BHP (or similar -even basket of- stocks) as a proxy? Aren't these companies profits derived from contractually settled copper prices at levels which may or may not reflect the current spot or front month price? Or are they exposed to spot/near spot transactions on a regular basis?

Are there any well known (read, liquid) ASX equities which tend to stockpile lots of copper?

I wouldn't mind equity proxy as I'd also be interested in zinc exposure, but that isn't directly relevant.

Thoughts and advice appreciated.

 

[skc]

Hi peoples,

I am interested in copper investing and have some questions, but as a total newbie in this area I need some advice from ASFers who might have a better idea than me. People with copper equity experience, not just in the derivatives or warehousing sense.

Now don't get me wrong, I am not bullish copper at the current price. But based on various research I've been conducting for my own personal interest recently, I am thinking if prices follow their normal seasonal basis then maybe prices at the end of this year will be more interesting for copper bulls. The timeframe of interest would be a holding duration about 9-12 months.

To that end I've been examining the various instruments and possibilities for expressing my view in the market.

Ideally I would like to buy long-dated call options on warehoused physical copper, but it seems such instruments (iShares and JPM want to start physical copper ETFs) are almost, but not available for trading yet.

So should I be buying (options on) copper futures for Sep/Dec delivery on the COMEX or LME? Then I will need to hedge my currency risk!

This leaves Aussie copper producers (since I don't see copper futures listed on the ASX website). The obvious choice being BHP (mostly based on liquidity). But my experience in this field is minimal. Some preliminary research does indicate a decent correlation between BHP and the AUD copper price over a good time basis, but my mind still has the nagging question of equity exposure when what I want is copper exposure.

Fundamentally, how rational is it to use BHP (or similar -even basket of- stocks) as a proxy? Aren't these companies profits derived from contractually settled copper prices at levels which may or may not reflect the current spot or front month price? Or are they exposed to spot/near spot transactions on a regular basis?

Are there any well known (read, liquid) ASX equities which tend to stockpile lots of copper?

I wouldn't mind equity proxy as I'd also be interested in zinc exposure, but that isn't directly relevant.

Thoughts and advice appreciated.

Some CFD providers offer OTC synthetic copper instruments. E.g. IG market is quoting High Grade Copper Dec-11 38105/38145 in US$2.5 / pip. A mini size (50c) is also available. There is also an instrument called ETC Copper at 41.51/41.55 but I don't know what it is.

With CFD only your P&L is affected by FX but I trust you will DYOR.

On ASX the bigger copper plays are OZL, PNA, SFR, DML, RXM, AVM(?), BOC... some are producers and some are explorers. BHP probably has more iron ore than copper.

 

[RandR]

Hi peoples,

I am interested in copper investing and have some questions, but as a total newbie in this area I need some advice from ASFers who might have a better idea than me. People with copper equity experience, not just in the derivatives or warehousing sense.

Now don't get me wrong, I am not bullish copper at the current price. But based on various research I've been conducting for my own personal interest recently, I am thinking if prices follow their normal seasonal basis then maybe prices at the end of this year will be more interesting for copper bulls. The timeframe of interest would be a holding duration about 9-12 months.

To that end I've been examining the various instruments and possibilities for expressing my view in the market.

Ideally I would like to buy long-dated call options on warehoused physical copper, but it seems such instruments (iShares and JPM want to start physical copper ETFs) are almost, but not available for trading yet.

So should I be buying (options on) copper futures for Sep/Dec delivery on the COMEX or LME? Then I will need to hedge my currency risk!

This leaves Aussie copper producers (since I don't see copper futures listed on the ASX website). The obvious choice being BHP (mostly based on liquidity). But my experience in this field is minimal. Some preliminary research does indicate a decent correlation between BHP and the AUD copper price over a good time basis, but my mind still has the nagging question of equity exposure when what I want is copper exposure.

Fundamentally, how rational is it to use BHP (or similar -even basket of- stocks) as a proxy? Aren't these companies profits derived from contractually settled copper prices at levels which may or may not reflect the current spot or front month price? Or are they exposed to spot/near spot transactions on a regular basis?

Are there any well known (read, liquid) ASX equities which tend to stockpile lots of copper?

I wouldn't mind equity proxy as I'd also be interested in zinc exposure, but that isn't directly relevant.

Thoughts and advice appreciated.

In regards to BHP, impact of copper price is US 1c/lb = US 20 million net profit for BHP. (figure taken from last page of there recent investor presentation.)

I couldnt give you any opinions or thoughts on any other copper producers, as I dont follow any. But if your interested in going long on copper youve got to be feeling bullish about asia over the next few years ?

Bit of a left field thought, but the stocks that could give you the greatest leverage ... both positive and negative, to the copper price, could be those in the building space.

The thinking is, high copper price = lots of construction, builders with lots of work and contracts flowing in.
lower copper price = indicated bugger all construction, builders not winning new contracts.

Indeed the copper price could be a leading indicator for the building/construction sector. But im only theorising here. Maybe something to look into.

My favourite play along those lines would probably be REH - Reece, but as always do your own research.

 

[sinner]

With CFD only your P&L is affected by FX but I trust you will DYOR.

Is that right? If a position has a margin requirement of 1000USD, then surely the amount of margin I have to post to the CFD account is affected by the exchange rate since my account is denominated in AUD?

On ASX the bigger copper plays are OZL, PNA, SFR, DML, RXM, AVM(?), BOC... some are producers and some are explorers. BHP probably has more iron ore than copper.

Thanks

 

[skc]

Is that right? If a position has a margin requirement of 1000USD, then surely the amount of margin I have to post to the CFD account is affected by the exchange rate since my account is denominated in AUD?

Thanks

Not sure what you mean. Depends on what currency risk you want to hedge.

My point was that you don't need to hedge FX on the face value of the contract as with CFDs only the P&L represents actual cashflow.

If you are pushing your account so hard that a change in FX will affect your margin then yes you probably need to make sure you have enough $US margin buffer.

 

[sinner]

Not sure what you mean. Depends on what currency risk you want to hedge.

My point was that you don't need to hedge FX on the face value of the contract as with CFDs only the P&L represents actual cashflow.

If you are pushing your account so hard that a change in FX will affect your margin then yes you probably need to make sure you have enough $US margin buffer.

Hmm, nevermind it doesn't even matter I just looked in my IG account - they only offer copper forwards for the front month. I'd have to roll the contract instead of just buying the one that I want.

Looks like it's to the COMEX