Copper & Aluminium

Now that we’ve taken a good look at some of the most popular and widely traded commodities, it is time that we get into the other ones as well. In addition to bullion and energy, the commodity market also deals with another special segment of commodities - base metals. Under base metals, you get to trade in the following commodities - copper, aluminium, lead, nickel, and zinc.

In this chapter, we’ll restrict our focus to two base metals - copper and aluminium and get into the specifics of the respective contracts.

Copper: An overview

Copper is an extremely valuable base metal, with an extensive range of uses, which includes power transmission. It currently ranks third in the list of most sought after base metals after steel and aluminium. The metal is well-known for its exceptional conductivity, strength, and durability. The demand for copper is also quite high, which makes it one of the most liquid contracts in the market. In fact, the liquidity of copper contracts is comparable to that of gold, silver, and crude oil!

Considering the importance of copper, the commodity market has included the metal in its product portfolio, allowing traders, manufacturers, processors, and others, to hedge their risk and profit off the short-term price movements.

Copper: Contract specifications

When it comes to copper commodity trading, unlike the precious metals, copper has only one derivative contract. Here’s a tabulated version of the contract specifications.

 Let’s now take a look at the current trading price of the contract. Here’s a snapshot from the MCX website that clearly states the price of the contract along with other important details.

So, as you can see, the price of the futures contract of copper is currently at Rs. 642.30. This price pertains to a kilogram of copper. Now, since the minimum lot size of the contract is 2500 kilograms (2.5 Metric Tons), the total contract value comes up to Rs. 16,05,750. The margin that you would have to pay to purchase a futures contract of copper would approximately come to around Rs. 1,50,071.

Although the amount of margin that you would have to put up to purchase a futures contract of copper is high, the reward that you may get to enjoy if the price moves in your favour could also be on the higher end. For instance, for every 5 rupee change in your favour, you stand to make around Rs. 12,500 (Rs. 5 x 2500). This makes trading copper a great opportunity for investors interested in base metals.

Aluminium: An overview

Among the non-ferrous metals, Aluminium is easily one of the most used. The metal is silvery white in colour, soft, highly ductile, and malleable. This allows Aluminium to be moulded, shaped, stamped, and forged in almost any form or shape. Unlike other base metals, the earth is abundant with Aluminium.

That’s not all. The metal can be easily recycled with little to no loss in its properties. No wonder aluminium is one of the most consumed metals, second only to steel! As a matter of fact, you can find aluminium in almost all the devices or products that you use on a daily basis. Right from a kitchen faucet to an airplane, this white silvery metal features as a key component in a lot of everyday items and products.

Aluminium: Contract specifications

Now that you know how important aluminium is, let’s move onto the contract specifications part to understand aluminium commodity trading better. Aluminium also has only one derivative contract.

 Here’s a quick look at a snapshot from the MCX website with the current trading price of Aluminium futures contract.

Since aluminium is abundantly available, the price per kilogram of the metal is significantly lower than other base metals. This makes aluminium one of the most affordable contracts for a trader in both the spot market as well as the derivative market.

As you can see from the snapshot above, the futures contract of aluminium is currently trading at Rs. 168.40 per kilogram. Considering the fact that the minimum lot size of the contract is around 5,000 kilograms, the contract value comes up to Rs. 8,42,000 (Rs. 168.40 x 5,000). Now, the margin that you would have to deposit is likely to come up to approximately Rs. 75,500.

With the lot size at 5,000 kilograms, for every rupee that goes in your favour, you would earn Rs. 5,000 as a profit. Considering the fact that you only deposit Rs. 75,500 as margin, you can easily say that trading aluminium is as lucrative as it can get.

Wrapping up

That was very enlightening, wasn’t it? In the forthcoming chapter, we will be dealing with two other not-so-well-known base metals - Nickel and Lead. Stay tuned! 

A quick recap

• In addition to bullion and energy, the commodity market also deals with another special segment of commodities - base metals. 
• Under base metals, you get to trade in the following commodities - copper, aluminium, lead, nickel, and zinc.
• Copper is an extremely valuable base metal, with an extensive range of uses, which includes power transmission. 
• It currently ranks third in the list of most sought after base metals after steel and aluminium. 
• Unlike the precious metals, copper and aluminium each have only one derivative contract. 
• The lot size of the copper contract is 2,500 kilograms, while the lot size of the alumiinium contract is 5,000 kilograms.