COPPER- UPPER End Skepticism

This is what we call as a resounding journey in Copper, Inventories kept on exhausting on LME and this assisted the bulls to get hold of the bears in rallies. But the upper end journey is also letting skepticism to dig in participant’s minds and this can see some volatile sessions in the days to come.

Copper is the best non- precious metal conductor of electricity as it encounters much less resistance compared with other commonly used metals. It sets the standard to which other conductors are compared. Copper is also used in power cables, either insulated or uninsulated, for high, medium and low voltage applications. In addition, copper's exceptional strength, ductility and resistance to creeping and corrosion makes it the preferred and safest conductor for commercial and residential building wiring. Copper is an essential component of energy efficient generators, motors, transformers and renewable energy production systems.

LME inventories recently touched its five month lows on 10th March 2008. LME-registered stocks of copper fell by 9450 tones (3rd March- 10t March) with the headline figure recording a fresh 2008 low and ending the week at its lowest level since October 2007. Meanwhile the prices on MCX turned down from Rs 345.50 per kg on 3rd March to Rs 338.20 per kg on 10th March, it would also be worth mentioning that during this period open interest in the contract depleted from 9918 to 8848 contracts which points out the increase of short positions in the contract.

News from Chinese markets is also setting bearish undertones, Chinese copper imports fell by around 5% in February from 226980 tonnes from 239000 tonnes in January. While part of the decline was due to Lunar New Year holidays and severe winter storms affecting demand, concerns the Chinese market is well supplied have been weighing on prices of red metal. Rise in inventories level in Shanghai for the fifth straight week on 7th March also brought alarming bells to the traders. Shanghai inventories of Copper popped up by 3955 tonnes to 52840 tonnes.

The only supportive factor for the Base metals has been the fact that the US Dollar is plummeting against the majors and in turn making the commodities denominated in Dollar attractive for consumers। The dollar came under aggressive selling pressure against the yen, falling to its lowest level since 2000 at 101।38 as heightened risk aversion prompted a sharp rally by the Japanese currency। Against the EURO the same was 1।5366 on 10th March 2008 after touching an all time high of 1।5463 on 7th March 2008 Persistent fears of instability in the US financial markets and burgeoning concerns about an economic recession have plagued the greenback। However, the currency's rapid descent has prompted a renewed bout of verbal intervention in an effort to contain further deterioration

Outlook:

The prices have run to levels from where correction is inevitable, resurgence of Inventories will be supportive for the corrective triggers in prices. Technically speaking Copper on domestic futures markets can correct upto 323 levels in near term.

Carbon Credit Futures

New initiative- Low Volumes
Carbon Credits are components to alleviate global warming. The entities involved can get a carbon emission certificate which they can sell either immediately or through a futures market
Multi Commodity Exchange (MCX) recently launched Carbon Credit futures on 21st January 2008, the basic purpose was to invoke trading in emissions allowances between the participants। The initiative not only made it Asia's first ever commodity exchange, it also made MCX join the league with Chicago Climate Exchange and the European Climate Exchange. The volumes so far have been quite dismal but the same will increase with the passage of time and increase in knowledge.
Carbon Credits are generated by enterprises in the developing world by using cleaner technologies and in turn saving on energy consumption। This consequently reduces their greenhouse gas emissions. For each reduced tonne of carbon dioxide emission, the entity gets a carbon emission certificate which they can sell either immediately or through a futures market, just like any other commodity.
Carbon Credits are components to alleviate global warming।The mechanism were formalized by an international agreement naming Kyoto Protocol, which is being formed on the consortium of more than 170 countries.
The Protocol requires developed countries to reduce their Green house Gas (GHG) emissions below levels specified for each of them in the treaty। These targets must be met within a five-year time frame between 2008 and 2012, and add up to a total cut in GHG emissions of at least 5% against the baseline of 1990. The targets cover emissions of the six main greenhouse gases, namely: Carbon dioxide (CO2), Methane (CH4), Nitrous oxide (N2O), Hydro fluorocarbons (HFCs), Perfluorocarbons (PFCs), and Sulphur hexafluoride (SF6).

Global Exchanges:
The first exchange to start Carbon Credits trading was Chicago Climate Exchange, this is North America’s only exchange which provides platform to reduce emissions of six greenhouse gases। Total traded volume of Chicago Climate Exchange in January stood at 13,38,900 metric tonne while February comprising 99,84,400 till 27th February 2008. Year 2007 volumes surpassed 22.9 million metric tons CO2, an increase of 123% over 2006 trading volume. Highest monthly volumes were seen in February and July with 3,712,100 and 3,304,200 metric tons CO2 transacted respectively.
The European Climate Exchange (ECX) was launched by CCX in 2005, and is now the leading exchange operating in the European Union Emissions Trading Scheme. In
January volumes of this exchange reached a new monthly record of 171 Metric tonnes, up 180% on January 2007. Average daily futures and options volume were 7.8 Metric tonnes. On 22nd January, ECX hit its record daily volume till date with 14.9 Metric tonnes (14,900 lots) trading

Domestic Scenario :
In MCX, five Carbon Credit contracts in total have been made available for trading, starting from 1st January 2008 to 15th December of the contract year। The first contract ends on 15th December 2008 while the last one expires on 15th December 2012. The trading unit will be of 200 tonnes, and each tonne of carbon credit will be entitled to emit one tonne of carbon dioxide equivalent gases.
Maximum order size will be 10000 tonnes, with Tick size of 50 paise per tonne। Participant will have to keep 6% as an initial margin. In case of additional volatility, a special margin at such percentage, as deemed fit, will be imposed immediately on both buy and sale side in respect of all outstanding position, which will remain in force for next 2 days, after which the special margin will be relaxed. Delivery unit will be 200 tonnes of Carbon Credit.
The delivery center is Mumbai and at the time of delivery the member has to submit copies of relevant documents as a proof of holding Carbon credits certificates at the Exchange.
There are various price influential factors in MCX like Demand-Supply mismatch, Crude Prices, CO2 emissions, Coal Prices, and Other Global and geopolitical factors। So far MCX most actively traded contract is the December 2008 contract expiring on 15th Dec.
The prices of December expiry futures was Rs 1330 per metric tonne at the initiation on 21st January 2008, Open interest in the contract was 60, however it registered a price of Rs 1274।50 per metric tonne on 27th February 2008, a depletion of 4%, at the same time OI plummeted to 19. Volumes in the contract are 2400 metric tonnes.

Outlook:
This is still a very nascent stage for the Carbon trading in India, with most players yet to explore the benefits of Carbon futures trading, the prices and volumes can’t be taken as a benchmark for the future potential it holds. However with the passage of time, we can see a very price stable and volume driven market of Carbon Credit Futures trading.