Futures hopes to include oil trading
By Li Xiaowei (China Daily)
Updated: 2006-05-30 09:02
Shanghai Futures Exchange, China's only exchange trading metal and energy
contracts, has an ambitious plan to introduce new oil-related products to meet
the hedging needs of heavy energy users, including power companies and airlines,
at a time of wide oil price swings in international markets.
The exchange
is also contemplating a series of measures to open the futures market to more
financial institutions and foreign investors.
China's increased
consumption of oil and other raw materials, particularly copper, to fuel its
rapid economic growth, is widely considered to have a direct influence on world
prices. For that reason, prices of futures contracts traded on the Shanghai
Futures Exchange are important enough to set a world trend. More and more
foreign traders have shown a strong interest in participating in the exchange
market.
Due to growing demand for hedging by oil-related enterprises
amid price volatility of oil products, the exchange is developing and will
launch in due time contracts for heavy high-sulphur crude, medium low-sulphur
crude, gasoline, diesel and liquefied petroleum gas, said Chu Juehai, head of
the exchange's oil futures development team, at a forum earlier.
"Our
objectives are to create a crude and finished oil futures market that can
reflect the supply and demand relationship in China and the Asia-Pacific
region," said Chu.
Currently fuel oil is the only energy contract traded
on the exchange. The current daily turnover stands at 127,000 contracts, up by
more than half on the previous year and almost doubling the amount in 2004 when
it was launched.
On the metals side, the application to launch a steel
contract has been handed to the China Securities Regulation Commission (CSRC)
and the contract will start trading as soon as approval is given, said Lao
Guangxiong, vice-president of the exchange.
Copper and aluminium are the
two metals currently traded on the exchange. While the trading of aluminium is
gaining momentum with 371.45 billion yuan (US$46.43 billion) worth of contracts
changing hands in 2005, the trading of copper has remained strong 4.05
trillion yuan (US$506.25 million) worth of contracts in 2005 accounting for 30
per cent of the value of all commodities futures traded and has become
even more so amid high price volatility in recent months.
Driven by both
strong demand from developing countries such as China and speculation by funds
looking for good returns, the price of copper witnessed an unprecedented
increase to reach US$8,500 per ton in the London market, almost doubling the
level at the end of last year. As a result, the domestic copper price soared to
record highs hovering around 73,000 yuan (US$9,125) despite
occasional downward corrections.
"I don't think the price deserves to be
as high as it is. The price has been driven there by speculators' interest and
the market, I think, could calm down quite abruptly," said chairman of NYMEX
Europe Limited Roy Leighton on the sidelines of the forum.
Yet before
that happens, the copper price could be "distorted" to as high as over
US$10,000, said Jeremy Goldwyn, head of industrial commodities of the UK-based
Sucden brokerage firm that helps Chinese domestic firms to hedge
overseas.
To enhance risk control amid severe price volatility, the
exchange raised margins for both the metals by two percentage points at the end
of last week.
Also for risk control, which the exchange authorities deem
as the pre-condition for opening the market further, a futures investors
protection fund is to be set up this year, said Yang Maijun, director-general of
the CRSC's futures supervision department.
Like the protection fund
available to domestic securities investors, the futures fund is aimed at
protecting investors from non-systematic risks, such as the mismanagement of
futures companies, and the misappropriation of margin funds and so
on.
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