  Copper
producers (i.e., mining companies) sell their production to customers,
who transform the copper into various shapes and alloys. The copper
is then sold to downstream fabricators, who manufacture a variety
of end-use products. The copper producers and their customers come
together at commodity exchanges, which provide all of the mechanisms
and facilities needed to trade copper.
Copper is traded on three commodity exchanges: The London Metal Exchange
(LME), the Commodities Exchange Division of the New York Mercantile
Exchange (COMEX/NYMEX), and the Shanghai Metal Exchange (SHME). On
the LME, copper is traded in 25-tonne lots and quoted in US dollars
per tonne. On COMEX, copper is traded in lots of 25,000 pounds and
quoted in US cents per pound. On the SHME, copper is traded in lots
of 5 tonnes and is quoted in Renminbi per tonne.
The role of the exchanges is to facilitate the process of settling
prices. Prices are settled by bid and offer, reflecting the market's
perception of supply and demand of the commodity on a particular day.
The exchanges establish a price for the present day, called the spot
price, and a price for some specified time in the future, called the
future price. The exchanges allow for trading futures and options
contracts, which enable producers and consumers to fix a price in
the future, thereby providing a hedge against price variations.
In this process, the participation of speculators, who are ready to
buy the risk of price variation in exchange for monetary reward, gives
liquidity to the market. A futures or options contract defines the
quality of the product, size of the lot, delivery dates, delivery
warehouses, and other aspects related to the trading process. The
existence of futures contracts also allows producers and their clients
to agree on different price settling schemes to accommodate different
interests.
Commodities exchanges also provide for warehousing facilities that
enable market participants to make or take physical delivery of copper,
in accordance with each exchange's criteria.
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