India’s largest commodities exchange platform, Multi Commodity Exchange of India Limited (MCX) launched country’s first copper options contracts. The option contract will provide physical market participants additional instrument to hedge their price risk. The copper option contracts were launched with lot size of 1 tonne in three contracts expiring in June, August and November 2018.
Copper is third-most-consumed industrial metal in the world, after iron and aluminium. In last few years, world’s refined copper usage has surged, owing to growing demand in sectors like electrical and electronic products, industrial machinery and equipment, building construction, transportation equipment and consumer and general products. Copper ore production in India stood at 3,846 thousand tonnes in 2016-17 and its consumption demand for refined copper was 820 thousand tonnes in the FY16.
Options are an instrument that gives buyer right to buy or sell an underlined at present price on a future date. They are of two types: puts (right to sell) and calls (right to buy). According to market experts, options are also a much better hedging instrument as compared to futures for hedgers.
Significance of copper options contracts
It will provide optimal tool for stakeholders to hedge and mitigate price risk in copper. It gives copper industry greater flexibility with alternative opportunities to take on price risk. It will help corporates to do better budgeting exercise as premiums will be known. This will help us to procure material at prices that have been envisaged specially in situations like tender or open orders. It will also complement current futures contracts on MCX and bring greater vibrancy to metals market and give stakeholders opportunity to better manage their price risk.
Multi Commodity Exchange (MCX)
MCX is country’s first listed commodity futures exchange that facilitates online trading, and clearing and settlement of commodity futures transactions, thereby providing platform for risk management. It was launched in November 2003 and operates within regulatory framework of Forward Contracts Regulation Act, 1952 (FCRA, 1952) under SEBI. MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading.