China's Commodity Futures On The Ascent
BMI View: Through launching a host of commodities futures contracts, Chinese authorities aim to empower domestic consumers with greater hedging tools and a larger say in the global pricing of major commodities . Despite fast development of the number of contracts and trading volumes, we do not believe China's futures markets pose any immediate threat to the giant benchmark exchanges in the US and the UK. In fact, the successful implementation of trading platforms in China is not without major roadblocks, as Chinese authorities maintain a tight grip on commodities production and pricing as well as on financial markets regulations.
In an effort to enhance China's pricing power in the commodities market, authorities have been making bold strides in the establishment of domestic-based commodities futures contracts in recent years. For decades, the London Metals Exchange (LME), Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT) and the IntercontinentalExchange (ICE) have dominated commodities pricing. Yet, in recent years, none of these global heavyweights can claim the top three spots for the most-actively traded commodity futures contracts. Instead, China's three futures commodities exchanges, Dalian, Zhengzhou and Shanghai top the global leader board. In fact, the 326mn soybean meal contracts that changed hands on the Dalian Commodity Exchange (Dalian CE) in 2012 made it the world's most-active commodity future, far ahead of the 73mn corn contracts traded on the CBOT, according to the Washington-based Futures Industry Association (see table at end of article).
China's futures contracts cover a wide range of commodities, including metals such as aluminium, zinc, copper and lead, as well as soybean, corn, wheat, sugar and cotton for agriculture. However the total number of contract is still limited compared with the hundreds of contracts operated by the large exchanges in the US and the UK. Recently, China extended the futures coverage for five commodities:
Colossal Imports Select Commodities - China Imports, 2012 (As % of global volume)