Shanghai Shipping Exchange works to lower risk
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China Daily, December 8, 2011
The Shanghai Shipping Exchange on Wednesday began offering derivatives meant to protect shippers from the risks posed by the fluctuating cost of shipping coal on two domestic routes.
The derivatives will apply to dry-bulk carriers that have deadweight capacities of 40,000 to 50,000 tons on routes going from Qinhuangdao to Shanghai and Guangzhou. A freight rate is the price charged for taking a certain piece of cargo from one place to another.
The new derivative will be settled in yuan in accordance with a freight-rate index the exchange also introduced on Wednesday. The derivatives will be sold in lots, one of which will be equal to 100 tons of cargo. The exchange will require 20 percent of margin from each trader.
Coal freight rates on the two routes tend to fluctuate widely. Every year, more than 400 million tons of thermal coal is shipped on the two routes at rates varying from 20 yuan to 160 yuan a ton, according to the exchange.
Zhang Ye, president of the Shanghai Shipping Exchange, expects the derivative to be one of the most often-traded products on the exchange.
"During a trial run, the market response was good," Zhang said in a speech at the Shanghai Exchange Forum. "Shipping companies have a strong demand for products that can be used as hedges on domestic coal routes."
If the new derivative proves popular, Zhang said the exchange will consider introducing similar products for more routes and more goods.
The Shanghai Shipping Exchange began to develop quickly after the city adopted a plan to build itself into a global financial and shipping center by 2020.
The city government, meanwhile, has attached great importance to shipping derivatives, which it sees as being a crossroads between the shipping and financial industries.
Six months ago, the shipping exchange began offering China's first forward freight-container contracts - derivatives also used to control risk. The index for the container freight will be based on shipping rates on routes between China and the Americas and China and Europe.
About 100,000 lots of those contracts are traded on the exchange each day. This year, about 7.53 million lots have been traded on the exchange over the course of 110 trading days.
Fang Xinghai, director-general of the Shanghai Financial Services Office, said in a speech during the Shanghai Exchange Forum that the city will introduce more shipping indices in an attempt at making Shanghai into a center for trade in shipping derivatives.
He said the city is also encouraging shipping companies and financial institutions to work together to introduce funds that will invest in the shipping industry.
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