China’s ShFE plans commodities platform to set physical prices
Shanghai Futures Exchange (ShFE) said it would launch China’s first real-time platform for trading physical commodities from copper to chemicals, as it seeks to improve transparency and challenge rivals in the global futures market.
The platform will set physical premiums and discounts for cash-settled futures warrants depending on the commodity’s location, quality and brand.
In commodities trading, buyers typically pay a premium on top of or receive a discount from the underlying futures price for the physical delivery of the product.
“The trade aims to promote a premium and discount pricing mechanism among different brands, grades and delivery regions of the commodities, and improve efficiency of commodities trading,” ShFE said in a statement.
It did not give a date for the launch.
All ShFE’s futures products – from ferrous and base metals to precious metals, energy and chemicals – would be available on the platform but only companies would be allowed to participate not individuals, it said.
That suggests the bourse wants to limit the platform to industrial users, such as copper fabricators, aluminium smelters or chemical makers, helping avoid big physical price swings.
Small commodities trading platform investors tend to trade on a short-term basis, often causing price volatility.
ShFE’s planned platform aimed to make trading more transparent and reduce risks, the bourse said. Margins would not be applied, with full payment required upfront, it said.
The move mirrors that of its U.S. rival CME Group Inc , which has launched cash-settled U.S. premium contracts for aluminium and copper in recent years.
The London Metal Exchange, the world’s oldest and largest metals marketplace, has said it also plans to introduce cash-settled regional aluminium premiums in the future.
The initiative also comes as China’s commodities derivatives exchanges have started opening up to foreign investors for the first time, part of an long-term effort to increase their influence over global prices of everything from oil to copper.
In March, Shanghai launched a crude oil contract, the first commodity derivatives futures market to be open to international investors. This month, Dalian Commodity Exchange took a similar step, giving foreign players access to its iron ore futures.
In the past decade, the Shanghai exchange has captured a greater share of global metals futures trading volumes from the LME as the country has grown into the world’s top consumer and producer of metals.
Turnover has also boomed as China’s burgeoning middle class has developed an appetite for investing in financial markets.
Source: Reuters (Reporting by Muyu Xu and Josephine Mason Editing by Edmund Blair)