Copper and Aluminium

14.1 The Sumitomo Copper Scandal

Varun: Isha, I came across something called the Sumitomo Copper Scandal. What was that about?

Isha: Ah, that’s one of the most famous cases of market manipulation. A trader named Hamanaka tried to control global copper prices by hoarding physical copper and building huge futures positions.

Varun: Sounds risky. Did it work?

Isha: For a while, yes. But when global supply surged—especially from China—his strategy collapsed. Sumitomo lost billions.

Varun: So it’s a lesson in overconfidence?

Isha: Exactly. It shows why risk management and transparency matter more than dominance in any market.

In the world of commodities, few stories are as infamous—or instructive—as the Sumitomo Copper Scandal. This event, which unfolded in Japan during the mid-1990s, remains one of the most dramatic examples of rogue trading and market manipulation. It’s a cautionary tale that continues to echo through trading floors and risk management discussions even today.

The Setup: Sumitomo’s Copper Empire

• Sumitomo Corporation, a major Japanese conglomerate, was deeply involved in global commodity trading. Among its divisions, copper trading stood out—both for its scale and its influence. At the centre of this operation was Yasuo Hamanaka, Sumitomo’s chief copper trader, often referred to as “Mr. Copper” in industry circles.
• Hamanaka’s strategy was aggressive and far-reaching. He purchased physical copper from global markets and stored it in warehouses across Japan, Europe, and other key ports. At one point, his spot market holdings represented nearly 5% of the world’s copper reserves—an astonishing figure that gave him significant control over supply.
• Simultaneously, Hamanaka built massive long positions in copper futures on the London Metal Exchange (LME). Because the LME did not publish open interest data at the time, the true extent of his exposure remained hidden from other market participants.

The Manipulation: How the Strategy Worked

Whenever other traders attempted to short copper, Hamanaka would step in and buy aggressively. Backed by Sumitomo’s deep pockets, he could absorb large volumes, pushing prices higher. This created a feedback loop:

• Rising copper prices squeezed short sellers.
• Those who defaulted on futures contracts had to source physical copper—often from Sumitomo—at a premium.
• Sumitomo profited both from futures and spot sales.

This dual-market dominance allowed Hamanaka to profit handsomely and maintain control over copper pricing. For nearly a decade, the strategy worked. Sumitomo became a dominant force in the copper market, and Hamanaka was hailed as a trading genius.

The Collapse: When Supply Overwhelmed Strategy

• In the early 1990s, China ramped up its copper production, flooding the global market with supply. Prices began to decline. Hamanaka, heavily leveraged and deeply exposed, struggled to unwind his positions. Instead of cutting losses, he borrowed more to maintain his long exposure—hoping for a rebound.
• But the market didn’t cooperate. Copper prices continued to fall, and the sheer size of his positions made it impossible to exit without triggering further declines. The result was catastrophic: Sumitomo incurred losses estimated at $5 billion, and the scandal led to lawsuits, regulatory scrutiny, and a complete overhaul of internal risk controls.

Lessons Learned

• The Sumitomo Copper Scandal is more than a story of one trader’s downfall—it’s a masterclass in the importance of risk management, transparency, and position sizing. It highlights how unchecked leverage and lack of oversight can bring down even the most powerful institutions.
• As we move into the fundamentals of copper trading, keep this case in mind. Markets reward discipline, not dominance. And no position—no matter how profitable—should ever be immune to scrutiny.

14.2 –Copper Basics: Structure, Usage, and Trading on MCX

Varun: That scandal was intense. But what makes copper so important today?

Isha: Copper is everywhere—from EVs and telecom to construction and renewable energy. It’s the third most consumed metal globally.

Varun: And it’s traded on MCX too?

Isha: Yes, in two formats—standard and mini contracts. High liquidity, strong industrial demand, and macro sensitivity make it a favorite among traders.

Varun: So it reacts to global data like PMI and Fed decisions?

Isha: Exactly. And its technical charts are very responsive, which helps in short-term setups.

Copper is one of the most actively traded base metals on the Multi Commodity Exchange (MCX). As a base metal, it belongs to the category of industrial-use metals that are not considered precious—unlike gold or silver. Its high liquidity, with daily turnover exceeding ₹2,000 crore across roughly 55,000 lots, places it in the same league as crude oil and gold in terms of market participation.

Why Copper Matters

Globally, copper ranks as the third most consumed metal, following steel and aluminium. Its price is tightly linked to macroeconomic cycles, infrastructure spending, and industrial output. Copper’s versatility stems from its exceptional electrical conductivity, making it indispensable in power transmission and electronics.

For instance, while most electric vehicles use permanent magnet motors, Tesla’s Model 3 rear-wheel drive variant uses an induction motor with copper windings, reducing reliance on rare earth materials. This design choice highlights copper’s strategic importance in the clean energy transition.

Beyond EVs, copper is used extensively in:

• Urban infrastructure and construction (e.g., copper pipes and roofing)
• Electrical wiring and switchgear
• Industrial machinery and heat exchangers
• Railway electrification and signaling systems
• Telecom networks and data centres
• Renewable energy installations (solar and wind)

One lesser-known but fascinating application is in antimicrobial surfaces. Hospitals in Europe and Japan have begun using copper alloy door handles and bed rails to reduce infection rates—thanks to copper’s natural ability to kill bacteria on contact.

Global Demand Snapshot

As of recent estimates, global refined copper demand exceeds 25 million metric tons annually, with China accounting for nearly 50% of consumption. India’s demand is also rising, driven by electrification, housing, and telecom expansion. However, supply disruptions—such as strikes in Chilean mines or export curbs in Africa—can cause sharp price swings.

Trading Copper on MCX

Copper is traded in two contract formats on MCX: the standard Copper Futures and the Copper Mini Futures. Both are settled in cash and follow similar expiry rules, but differ in lot size and margin requirements.

Standard Copper Contract

• Price Quote: Per kilogram
• Lot Size: 1 metric ton (1,000 kg)
• Tick Size: ₹0.05
• P&L per Tick: ₹50 (₹0.05 × 1,000 kg)
• Expiry: Last trading day of the month
• Delivery Unit: 10 metric tons

Let’s say copper is trading at ₹748.20/kg in October 2025. The contract value would be:

Assuming a margin requirement of 7.5%, the NRML margin would be:

For intraday trades (MIS), the margin would be roughly half—around ₹28,000.

Copper Mini Contract

• Price Quote: Per kilogram
• Lot Size: 250 kg
• Tick Size: ₹0.05
• P&L per Tick: ₹12.50 (₹0.05 × 250 kg)
• Expiry: Last trading day of the month
• Delivery Unit: 10 metric tons

If the Copper Mini contract is trading at ₹749.00/kg, the contract value would be:

With a margin requirement of 8%, the NRML margin would be:

This lower exposure makes the mini contract ideal for retail traders and those testing short-term strategies.

Trading Strategy Tip

Copper’s high liquidity and sensitivity to global economic indicators make it an excellent candidate for technical analysis. Chart patterns, volume spikes, and moving averages work well on copper, especially around macro events like PMI releases, Fed rate decisions, or Chinese industrial data.

14.3 Aluminium Basics: Abundance, Applications, and Trading Dynamics

Varun: Isha, what about aluminium? I always thought of it as packaging material.

Isha: It’s much more than that. Aluminium is used in aerospace, EVs, construction, and electronics. It’s lightweight, corrosion-resistant, and highly recyclable.

Varun: So it’s industrially critical?

Isha: Absolutely. India’s demand is rising fast, and global production is over 60 million metric tons. But prices can swing due to energy costs and policy changes.

Varun: Like the aluminium can shortage in India?

Isha: Exactly. Even with abundant supply, local bottlenecks can create trading opportunities.

Aluminium is one of the most widely used base metals in the world and a highly liquid commodity on MCX. While many associate it with kitchen foil or beverage cans, its industrial significance goes far beyond. From aerospace to electronics, aluminium plays a critical role in modern infrastructure and manufacturing.

Abundance and Properties

Aluminium is the third most abundant element in the Earth’s crust, making up nearly 8% of its composition—after oxygen and silicon. This abundance ensures that supply disruptions are rare, and prices are more influenced by energy costs and demand cycles than scarcity. One of aluminium’s most valuable properties is its resistance to corrosion, which makes it ideal for outdoor structures, marine applications, and long-lasting components.

However, aluminium production is extremely energy-intensive. It takes approximately 17.4 megawatt-hours of electricity to produce just one metric ton. This is why power costs form a significant portion of manufacturing expenses for companies like Hindalco and Vedanta. On the flip side, recycling aluminium requires only 5% of the energy, making it one of the most sustainable metals in circulation.

Industrial Applications

Aluminium’s versatility is unmatched. It’s used in:

• Aerospace: A Boeing 747 uses over 70,000 kg of aluminium in its structure.
• Automotive: Lightweight frames and engine components.
• Construction: Windows, roofing, and structural panels.
• Electronics: Smartphone casings and heat sinks.
• Defense and Railways: Armored vehicles and high-speed train bodies.
• Pharmaceuticals and Packaging: Foils, blister packs, and containers.

India’s demand for aluminium is growing rapidly, driven by infrastructure projects, EV adoption, and smart city initiatives. Domestic consumption is estimated at 2 million metric tons annually, with a significant portion met through imports.

Global Market Trends (2025)

As per recent industry reports, global aluminium production in 2025 is projected to reach 60 million metric tons, up from 56 million in 2015. Demand is keeping pace, especially from China, Southeast Asia, and India. However, prices have remained volatile due to energy costs, geopolitical tensions, and trade policies.

Here’s a snapshot of global aluminium trends:

• Production Growth: CAGR of ~6% over the last decade.
• Demand Stability: Closely matches supply, minimizing inventory build-up.
• Price Volatility: Average price in 2025 ranges from $2,580/MT in Chinato $3,095/MT in Germany, reflecting regional disparities.

Trading Aluminium on MCX

Aluminium is traded in two formats on MCX:

Standard Aluminium Contract

• Price Quote: Per kilogram
• Lot Size: 1 metric ton (1,000 kg)
• Tick Size: ₹0.05
• P&L per Tick: ₹50
• Expiry: Last trading day of the month
• Delivery Unit: 10 metric tons

Example: If aluminium is trading at ₹215.40/kg, the contract value is:

With a margin requirement of 8%, NRML margin would be ₹17,232.

Aluminium Mini Contract

• Lot Size: 250 kg
• P&L per Tick: ₹12.50
• Margin: ~4.5% for MIS, ~9% for NRML

This mini version is ideal for retail traders and short-term strategies.

Aluminium Fundamentals: A 2025 Snapshot

Aluminium remains one of the most actively traded base metals on MCX, prized for its liquidity, industrial relevance, and responsiveness to global macro trends. While long-term fundamentals are important, most traders hold aluminium positions for just a few days—making it more practical to focus on price dynamics, technical setups, and short-term supply-demand shifts.

Real-World Example: Aluminium Can Shortage in India (2025)

In April 2025, India’s beverage industry faced a major disruption due to a shortage of aluminium cans, triggered by new BIS certification rules. The Brewers Association of India estimated a shortfall of 12–13 crore units of 500 ml cans, which account for nearly 20% of beer sales nationwide. This supply crunch was not due to lack of raw aluminium, but due to bottlenecks in domestic manufacturing and import approvals.

This incident highlights a key principle in aluminium trading: price is not just about global supply—it’s about regional bottlenecks, energy costs, and policy shifts. Even with abundant global production, local disruptions can create short-term price spikes and trading opportunities.

Global Trends in 2025

According to the Aluminium Global Industry Report:

• Global productionis projected to exceed 60 million metric tons, with steady growth from Southeast Asia and the Middle East.
• Consumptionis keeping pace, driven by EVs, solar infrastructure, and packaging.
• Priceshave rebounded from their 2020 lows, averaging $2,580/MT in China and $3,095/MT in Europe, reflecting regional energy costs and tariffs.
• India’s demand is estimated at 2.2 million metric tons, with imports still playing a major role due to limited domestic smelting capacity.

Trading Insight

This kind of event-driven volatility—like the aluminium can shortage—can be spotted early through news flow and inventory data. For short-term traders, it’s a reminder that technical analysis works best when paired with real-world context. A sudden spike in demand from packaging or auto sectors, or a policy change like tariffs or certification rules, can shift prices even if global supply remains stable.

14.4 Aluminium Contracts on MCX

Varun: Isha, I’m thinking of trading aluminium. What are the contract options?

Isha: MCX offers two: the standard contract with 5 metric tons and the mini with 1 metric ton. Both are quoted per kg and settled monthly.

Varun: So the mini is better for retail traders?

Isha: Yes. Lower margins, smaller tick value, and manageable exposure. Great for short-term strategies and learning the ropes.

Varun: And the standard one suits bigger players?

Isha: Exactly. It offers deeper liquidity and higher tick value—ideal for institutions and high-volume traders.

Aluminium is a popular base metal on MCX, offering two distinct futures contracts: the Standard Aluminium Contract and the Aluminium Mini Contract. Both are quoted per kilogram and settled monthly, but they differ significantly in lot size, margin requirements, and tick value—making them suitable for different types of traders.

Let’s break down each contract and understand how they work in practice.

Standard Aluminium Contract (5 MT)

This is the larger of the two contracts and is typically favoured by institutional traders or high-volume participants. The daily traded value averages around ₹375 crore, and on active days, it can exceed ₹500 crore. While not as large as gold or crude oil, aluminium still offers excellent liquidity and tight spreads.

Contract Specifications:

Example (October 2025):

Let’s say aluminium is trading at ₹262.60/kg. The contract value would be:

If the price moves by one tick (₹0.05), your profit or loss would be:

Margin Requirements:

• NRML (Overnight): ~5.6% → ₹73,528
• MIS (Intraday): ~2.8% → ₹36,764

Aluminium Mini Contract (1 MT)

This contract is designed for retail traders and those looking for smaller exposure. It’s ideal for short-term strategies and technical setups, with manageable risk and lower capital requirements.

Contract Specifications:

Example

If aluminium mini is trading at ₹262.60/kg, the contract value is:

A single tick movement gives:

Margin Requirements:

• NRML: ~5.7% → ₹14,968
• MIS: ~2.8% → ₹7,484

14.5 Key Takeaway

• The Sumitomo Copper Scandal highlights the dangers of unchecked leverage and market manipulation.
• Copper is a vital industrial metal, used in EVs, infrastructure, electronics, and renewable energy.
• Copper demand is macro-sensitive, reacting to global data like PMI, Fed decisions, and Chinese output.
• MCX offers standard and mini copper contracts, with different lot sizes and margin requirements.
• Aluminium is the most abundant industrial metal, used across aerospace, construction, packaging, and electronics.
• Aluminium production is energy-intensive, making prices sensitive to power costs and policy shifts.
• India’s aluminium demand is rising, driven by infrastructure, EVs, and smart city projects.
• MCX aluminium contracts come in standard (5 MT) and mini (1 MT) formats, catering to different trader profiles.
• Event-driven volatility—like the 2025 aluminium can shortage—can create short-term trading opportunities.
• Both copper and aluminium are excellent for technical analysis, offering liquidity, responsiveness, and macro relevance.

14.6 Fun Activity

Fill in the blanks:

1. Copper Mini contract has a tick size of ₹0.05 and a lot size of 250 kg. → P&L per tick = _______
2. Aluminium Mini contract has a tick size of ₹0.05 and a lot size of 1,000 kg. → P&L per tick = _______

Answers:

1. ₹0.05 × 250 = ₹12.50
2. ₹0.05 × 1,000 = ₹50