Jan. 10 (Bloomberg) — China’s futures exchanges are pressing to introduce more agricultural products to help food producers and processors hedge against prices swings, officials said.
The Zhengzhou Commodity Exchange is waiting for approval to list white sugar futures and plans a canola contract, said Wei Zhenxiang, research and development head. His counterpart at Dalian Commodity Exchange, Zhu Lihong, says a soybean oil future and an options contract for existing soybean futures are planned.
China’s economy more than doubled in size in the past decade, turning the country into the world’s top user of commodities such as copper, soy and rice. Though the government says it wants more financial instruments to help companies hedge risks, regulators aim to avoid a repeat of the 1990s, when speculation caused prices to soar and some contracts to fail.
“There will be more new contracts, judging from the favorable development in terms of types of products, market awareness and participation over the past few years,” said Hong Jiangyuan, research chief at Shenzhen-based China International Futures Brokerage Co., last year’s top trader by volume on the Dalian Commodity Exchange. “Futures are a key risk hedging component as the economy becomes more market-oriented.”
The new contracts, which follow the introduction of four last year, will allow domestic producers and consumers such as China National Cereals, Oils & Foodstuffs Import & Export Corp. to hedge against price movements by buying or selling commodities for delivery at an agreed price in the future. Soybeans slumped 50 percent since March, following an eight-month rally in which prices more than doubled to their highest in almost 16 years.
Meeting
Representatives from the country’s three futures exchanges joined the country’s securities regulators for a two-day annual meeting ended Jan. 7 in Beijing to discuss policies and projects for developing the country’s capital markets.
The regulator pledged to push for the healthy development of the futures market and to boost the market’s operations, quality and volume, Shang Fulin, chairman of the China Securities Regulatory Commission, said in a statement after the meeting. The statement didn’t give specifics.
China Securities Regulatory Commission spokesmen Dai Biao and Lu Songbin couldn’t be reached for comment on the progress of the approval process.
“The demand for futures is growing as investors become more rational and use the futures market to hedge their risks,” said Wei of the Zhengzhou exchange in the east-central province of Henan. He declined to give a timeframe on when new products may start. The Zhengzhou exchange offers wheat and cotton contracts.
Soybean Oil
The Dalian Commodity Exchange, the only bourse handling soybean, corn and soymeal trades, has completed the design of its soybean oil contract and is ready to apply for regulatory approval, Zhu Lihong, head of research and development at Dalian Commodity Exchange, said in a telephone interview from the northeastern city. Zhu also declined to give a timeframe.
As China opens its economy to global trade, producers and manufacturers need access to financial tools to hedge against price fluctuations in commodity prices. The government restricts participation in international futures markets such as Chicago and New York to the biggest state-owned companies.
Trading of agricultural, metal and fuel oil contracts on China’s three futures exchanges in Shanghai, Dalian and Zhengzhou rose 36 percent last year to 14.7 trillion yuan ($1.8 trillion), the China Futures Association said on its Web site. The volume of contracts traded jumped 9.2 percent to 306 million, it said.
Room to Grow
The underlying value of transactions on the Chicago Mercantile Exchange last year was $463 trillion, up 39 percent from 2003, according to the exchange’s Web site.
China last year approved the trading of fuel oil on the Shanghai Futures Exchange and cotton on the Zhengzhou Commodity Exchange in northern China. Corn futures trading also started on the board of Dalian in northeastern China, followed by a second soybean contract last year. These brought the number of available contracts to 11. There are more than 130 products in the U.S.
There were 1.1 million cotton contracts traded in December on the Zhengzhou exchange, against 6.2 million for the No. 1 soybean contract in Dalian, according to the association figures. Cotton futures started on Jun. 1 last year. The soybean contract, in operation for more than a decade, was the biggest futures contract traded by volume last year in China.
Plans to allow trade of sugar and rice contracts were reported in state media as long as four years ago.
To contact the reporter for this story:
Koh Chin Ling in Beijing at ckoh2@bloomberg.net.
To contact the editor responsible for this story:
Peter Langan at plangan@bloomberg.net.