Copper Futures and Options

Base Metals Warehousing

CME Group offers physically delivered base metals contracts like Copper, Aluminum, Zinc and Lead. For each of these products, a network of exchange-approved warehouses is available for the delivery and storage of the metals.

These warehouses are approved by completing an onboarding process executed by the exchange. This process includes review and approval of required documentation as well as an onsite inspection of the facility. As an exchange-approved warehouse, the facility must comply with various requirements and obligations as prescribed by the rules and regulations of the exchange.

Determining Metal Eligibility

It is the responsibility of the warehouse to determine the eligibility of the metal in its inventory. Eligible metal is that which meets the contract specifications of the product. The specifications of the CME Group physically delivered products are detailed in the table below.

 

Copper

Aluminum

Zinc

Lead

Quality

Grade 1 electrolytic copper cathode meeting ASTM B 115-00 specifications or its latest revision.

Primary aluminum meeting all of the requirements of P1020A in the North American and International Registration Record entitled “International Designation and Chemical Composition Limits for Unalloyed Aluminum” (revised March 2007), or its latest revision.

Special high-grade zinc of 99.995% and meeting the chemical composition of one of the following standards: ASTM B6-12, ISO 752:2004, BS EN 1179:2003, GB/T 470-2008

Refined lead (minimum 99.970% purity) and meeting the chemical composition of either ASTM B29-03 (2009 Standard entitled “Standard Specification for Refined Lead (permitted grades: 99.97% and 99.995%), BS EN 12659:1999 Standard entitled “Lead and Lead Alloys-Lead (permitted grades: Material numbers PB970R, PB985R and PB990R), or GB/T 469-2005 Standard entitled “Lead Ingots” (permitted grades: 99.970%, 99.985%, 99.990% and 99.994%).

Metal offered for physical delivery against the futures contract must consist of a single brand of an Exchange approved refiner.

Metal offered for physical delivery against the futures contract must consist of a single brand of an Exchange approved refiner and shall consist of one shape.

Metal offered for physical delivery against the futures contract must consist of a single brand of an Exchange approved refiner and shall consist of one shape and size unless different shapes and sizes are needed for bundle stability.

Metal offered for physical delivery against the futures contract must consist of ingots of one shape and size unless different shapes and sizes are needed for bundle stability.

Shape

Cathodes

T-bars, Sows, Ingots as specified by brand

Ingots

Ingots

Contract Unit

25,000 pounds (~11.34 mt) with a tolerance of +/-2%

25 metric tons with a tolerance of +/-2%

25 metric tons with a tolerance of +/-2%

25 metric tons with a tolerance of +/-2%

Brands

COMEX approved brands are available at Service-Providers spreadsheet

COMEX approved brands are available at Service-Providers spreadsheet

COMEX approved brands are available at Service-Providers spreadsheet

COMEX approved brands are available at Service-Providers spreadsheet

Duty Status

Duty-Paid and Customs Cleared

Duty Unpaid

Duty Unpaid

Duty Unpaid

Source: CME Group

Delivering Metal into a Warehouse

When metal is delivered into a warehouse and is determined to be eligible, storage for that metal is paid to the warehouse directly by the owner of the metal. A customer may decide to warrant (register) the metal, usually for the purpose to use for delivery against an exchange futures contract.

The warehouse is responsible for warranting the metal. If a warehouse is directed to warrant the eligible metal, it creates an electronic warrant through an exchange-based system to register the metal. The warrant, which is in the name of the customer’s clearing member, contains pertinent information with respect to the metal that is being registered including the brand, weight, warrant number and warehouse identification. A warrant can only be created or cancelled by the warehouse.

Once the metal is on warrant, storage is then assessed and paid through the exchange’s Deliveries Plus (DPlus) system. At the end of the month, CME Clearing assesses the registered metal. Clearing, through DPlus, debits the account of the clearing member on behalf of the customer for the storage charge for the following month and pays directly to the warehouse. If the warrant is transferred, the previous owner’s account is reimbursed for prepaid storage fees and the new owner’s account is debited.

For Copper only, handling charges are paid upon warranting, whereas for the other metals, handling charges are paid upon cancellation for load out. If the Copper warrant is transferred, the handling charge is reimbursed to the seller and debited from the buyer.

Removing Metal from a Warehouse

If metal is requested to be loaded out of a warehouse, the customer must instruct the clearing firm to request a Cancel for Load Out in Deliveries Plus. The customer is responsible for scheduling and coordinating transportation and must have all charges paid prior to release of the metal from the warehouse.

Each metal has a specific minimum load out rate that the warehouse is obligated to meet on a daily basis and conveyance requirements. For Copper, it is required that the warehouse has both direct truck and rail access. The minimum daily load out rate for Copper is 500 short tons per day, combination of truck and rail. For Aluminum, Zinc and Lead the Warehouse must have direct truck and/or rail access and must meet the minimum load out requirement for the primary conveyance it has chosen. For Aluminum, the minimum daily load out requirement is 2% of total inventory with a minimum daily rate of 1,000 metric tons by primary conveyance. For Zinc and Lead, the minimum daily load out requirement is 500 metric tons per day via primary conveyance.

Each warehouse must report to the exchange an inventory of the eligible and registered metal it has in store each day. For base metals, these figures are reported for each location showing the movement of metal into and out of the warehouse as well as metal that has moved between the eligible and registered status as depicted in an inventory report publicly available on the CME Group website.

In addition to providing transparency in providing the daily inventory of metal in each warehouse location, a warrant line up report is also publicly available to show the schedule of shipments from the individual warehouses. This report provides additional color to the inventory report as it identifies the specific warehouse and its current shipment schedule which is valuable information for the market users involved in physical delivery.

Warehouse Locations

There is a warehouse network for each of the physically delivered base metals and, in many cases, the warehouse is approved for more than one metal. Copper is a duty paid contract which means that any duties or taxes associated with the storage or movement of the metal must be satisfied prior to the metal being delivered into the warehouse. Warehouse locations for Copper must be in the United States. For Aluminum, Zinc and Lead, a warehouse can be located in the U.S., Europe or Asia and must be in a Free Trade Zone. The Aluminum futures, Zinc futures and Lead futures contracts are duty unpaid and, once moved outside of the Free Trade Zone locations, any duties associated with the metal must be paid.

The current locations of the exchange-approved warehouses for the base metals products are shown in the table below.

Base Metals Warehouse Locations (as of April 1. 2019)

United States Copper Aluminium Zinc Lead
         
Baltimore, MD x x x x
El Paso, TX x      
New Orleans, LA x x x x
Salt Lake City, UT x      
Toledo, OH   x    
Tucson, AZ x      
Phoenix, AZ x      
Detroit, MI x x x x
Owensboro, KY   x x x
         
Europe        
         
Antwerp, Belgium   x x x
Bilbao, Spain   x x x
Rotterdam, The Netherlands   x x x
         
Asia        
         
Busan, South Korea     x x
Johor, Malaysia     x x
Port Klang, Malaysia   x x x
Singapore   x x x

Source: CME Group

Physical Delivery Timeline

The following overview shows the process and timeline for physical delivery of Copper. The assumption is that Client A is short 1 Dec’19 Copper contract and Client B is long 1 Dec’19 Copper contract. One Copper futures contract is equal to 25,000 lbs. (12.5 short tons).

The fees for this example are as follows:

  • Monthly Storage per short ton: $9.75
  • Outbound Handling per short ton (FOT – free on truck): $36.00
  • Outbound Handling per short ton (FOR – free on rail): $42.50

For Copper, since the handling out charge is paid upon warranting, the lowest conveyance fee is used, in this case, the FOT rate of $36 per short ton. If at the time the metal is cancelled for load out and rail is the chosen conveyance, the difference between the FOT and FOR rate is paid directly to the warehouse prior to shipping.

Benefits of COMEX Warehousing

COMEX warehousing is based on a transparent monthly storage charge structure.

The storage rates are established by each approved warehouse and the rates quoted on the CME Group website represent the maximum fees that can be charged by the warehouse. These rates are substantially lower than the storage rates for copper at other exchange-registered warehouses.

COMEX does not generate any revenue from the storage fees paid to the approved warehouses.

Load out rates and rules and facility capacities are based on each individual warehouse, not the location.

Warehouses are closely and consistently monitored by the exchange for compliance with rules and adherence to obligations to maintain efficient storage and handling of metal deliverable against the Exchange’s metals contracts.

Resources

More in Base Metals