The Dubai Gold & Commodities Exchange (DGCX) wants to get 20% of its volumes from metals futures contracts in the next two years, chief business officer Samir Shah told Metal Bulletin.
“11-12% of [current] volumes come from metals. We’d like it to be 15-20% of our portfolio,” Shah said.
DGCX, which currently trades gold, silver, and rebar contracts, launched a 5-tonne copper contract last week
to target retail investors and small- to medium-sized physical players in the Middle East and North Africa (Mena) region.
“In our portfolio of contracts, copper was a missing element,” Shah said.
Over the first three days 7,975 contracts (at 5 tonnes of the red metal per contract) were traded at a value of $322 million.
“Roughly $105 million has been traded on average in a day, which for early days is quite a good start,” Shah said.
“We don’t expect the largest businesses, the Xstrata’s of the world to do their copper business on us; they will continue to go to COMEX and LME. So we didn’t see that as the target market for us [...] the 5 metric tonne contract made sense to us rather than going too retail which the Indian exchanges have done, or go too institutional which exists on the London Metal Exchange [LME] and COMEX,” Shah said.
The DGCX contract is one of several new initiatives to tap smaller-scale demand for copper derivatives. The Singapore Exchange and the LME are discussing ways to revamp their minis contracts, which launched last year but failed to attract volumes, partly because of technical difficulties.
The Hong Kong Mercantile Exchange is planning a 5-tonne copper contract priced in yuan
“[Copper] is a leading indicator of the world economy and people use it as a proxy to the world economy,” Shah said.
“The view on copper is that it will continue to be an interesting metal given the volatility that it’s going to see. China will continue to be a key driver to the demand for copper, although the past few months the demand seems to have dropped, but I think it’s a short-term phenomenon,” he added.
Property in the Middle East has also stabilised since the downturn in 2008, he said.
“There is a lot of industrial activity happening, like setting up of factories and ports. A lot of these large-scale projects are happening in the UAE, GCC and then broadly in Africa. If we are to act as an exchange of choice for the region, copper is a very useful tool to have,” Shah said.
DGCX is looking at revamping its steel rebar contract and is looking at contract specifications, such as size, and is exploring new market makers for more liquidity, Shah said.
“[The steel rebar contract] was launched at the boom of the construction activity, pre-2008, so there was a lot of interest in that contract and it was pretty successful, but it got impacted by downturn,” he said.
“We are sizing up demand. If we think demand is right then we will invest back in the contract,” he added.
DGCX has approximately 230 members and 86 clearing members who come from financial centres across the world including Zurich, London, Chicago, Singapore, Auckland and Hong Kong, as well as the UAE
The Mena region accounts for 60% of its business followed by London, Chicago and Southeast Asia, Shah said.
Forex contracts on the DGCX, which include its flagship Indian rupee contract, bring in the most volumes at about 90%, while energy contracts have minimal contribution, Shah said.
Year-to-date volumes rose 131% to 2 million valued at $83.62 billion. Average daily business rose 57% to 24,680 in 2012, DGCX said.