The Shanghai Futures Exchange is set to start zinc trading late
this month, in its latest move to provide more hedging and
arbitrage tools to domestic industries.
"We plan to start it on March 26, though the date may still be
adjusted," a source at the exchange said yesterday.
Zinc is a bluish-white metal that can be applied as a coating to
protect steel from corrosion. China is the world's top zinc
user.
Contract zinc prices more than doubled in benchmark London Metal
Exchange trading amid a strong global pursuit of nonferrous metals
in 2006, though prices have declined 20 percent so far this
year.
The new contracts in Shanghai will trade zinc that's 99.995
percent pure, similar to those on the LME.
Analysts said the same requirement in grade could pave the way
for arbitrage trading between Shanghai and London. Arbitrage is the
practice of buying and selling the same security or asset in
different markets to capture a profit on the price difference.
"Besides, there are few limits in imports and exports in China
for zinc, which could also make arbitrage come easy," Minmetals
StarFutures analyst Cheng Xiongfei wrote in a recent note.
The Shanghai bourse, which currently trades copper, aluminum,
natural rubber and fuel oil, is the busiest of China's three
commodity futures exchanges. Other contracts that the Shanghai
exchange is studying include steel rods, nickel and fuel
ethanol.
Zinc could be the first futures contract approved by authorities
to trade this year. Last year, China launched contracts for white
sugar and PTA, a key feedstock chemical, on the Zhengzhou Commodity
Exchange and soybean oil futures on the Dalian Commodity Exchange
as the country seeks to gain more say in pricing in the global
commodities market.
For example, Shanghai's copper contracts, pushed by its huge
trading volume, have already been able to influence those on the
LME.
Turnover on China's three futures exchanges rose 56 percent to a
record 21 trillion yuan (US$2.7 trillion) last year. Trading volume
rose 39 percent to 449.5 million lots, according to the China
Futures Association
(Shanghai Daily March 14, 2007)