News

With copper options, China steps up challenge to London, New York rivals

Date Sep 21 2018 15:00:56 Source:Foreign media

The Shanghai Futures Exchange (ShFE) will launch copper options trading on Friday, aiming to take a slice of a $270 billion global market in one of its biggest challenges yet to London and New York rivals.

 

The product, which follows the launch of sugar and soymeal options last year, comes as the exchange also considers opening its flagship copper futures to foreign investors, and is a major step in China's prolonged effort to develop its derivatives industry.

 

Options help metal consumers, producers and traders manage price exposure. A contract gives the buyer the right – but no obligation – to assume a futures position at a specified price.

 

Over the past decade, the Shanghai bourse which was set up in 1999 has carved out a bigger share of the global copper futures market, challenging the London Metal Exchange's (LME) near dominance as China's economy boomed and retail investors flocked to commodities futures trading.

 

Now it wants a part of the burgeoning options business.

 

Volumes of copper options traded on the LME totaled around $265 billion last year at current prices, up 0.3 percent on a year earlier, while Comex copper options traded on CME Group almost tripled to 104,490 lots in 2017, worth about $7.3 billion.

 

Some Chinese copper firms already trade options on the established London and New York markets, but others are not able to stump up the foreign currency required as collateral for trading. The ShFE copper contract is denominated in yuan.

 

"At the moment, ShFE copper options can be best seen as alternative to onshore market participants with restricted or no access to LME copper options," said Rochelle Wei, CEO of J.P. Morgan Futures Co.

 

Hedging in China rather than overseas may also better reflect the domestic market for local players, said Qiu Guoyang, assistant general manager at Shenzhen-based brokerage Jinrui Futures.

 

He expected the ShFE launch to eventually have an impact on options volumes on the LME, which was founded in 1877, although not in the short term.

 

In an emailed response, the LME said it sees the Chinese market as a complementary trading system "stimulating arbitrage flow and helping to grow the market as a whole."

 

CME global head of metals, Young-Jin Chang, also welcomed the new product and noted that 20 percent of its volume originates outside U.S. trading hours, pointing to demand in Asia.

 

Going global

 

Underscoring its determination to support the options contract, the ShFE has lined up 18 market makers, to fuel activity, far more than the handful that is usual for international exchanges.

 

Those include a unit of Jinrui Futures, a subsidiary of Jiangxi Copper Co,, one of China's biggest copper smelters, and state-run diversified metals firm China Minmetals Corp.

 

Swiss commodity trading house, Trafigura, which has a China-based trading unit, will also be involved in the first day of trading, a spokesperson said.

 

Success may depend on whether smelters and fabricators use the home product for hedging or if it becomes a playground for speculative investors, who often dominate other Chinese futures markets, like iron ore and coal, and cause wild volatility in prices, analysts said.

 

Launching an options contract will also help ShFE garner more traction with international players as it prepares to open its copper futures contract to foreign investors.

 

ShFE has not given a date for the internationalisation yet.

 

The exchange launched a crude oil futures contract in March that aims to compete with rival global benchmarks and the Dalian Commodity Exchange opened its iron ore futures to outside investors in May.

WGC: Gold Not at the Centre of India's CAD Issues

Date Sep 21 2018 14:59:18 Source:Scrap Monster

The World Gold Council (WGC) warned Indian government against plans to raise duty on gold import as part of efforts to rein in widening current account deficit (CAD) situation. It must be noted that CAD has widened to 2.4% of the Gross Domestic Product (GDP) during the initial quarter of the current fiscal year.

 

According to P.R. Somasundaram, Managing Director-Indian Operations at the WGC, the administration should not resort to any policy action to tamper with gold import duty or impose any other restrictions on gold. He noted that gold is never at the centre of the current account deficit issue in the country, as demand for metal is already down by 7% when compared with the previous year.

 

This comes in the wake of reports that the government intends to hike import duty on gold, so as to reduce imports and heavy dollar outflow. Meantime, government sources yesterday clarified that it has no plan to hike import duty on gold at the moment, as it would trigger smuggling activities on account of estimated jump in demand ahead of festive season.

 

Meantime, ASSOCHAM’s 11th International Gold Summit has called for increased domestic production of gold by the country. The country currently produces around 1 to 1.5 tonnes of gold per annum, as against the consumption of 900 tonnes. The participants at the summit pointed out that India could ramp up gold production in additional 19 mines, which could lift the annual domestic gold production to between 100-200 tonnes in a year.

China's Nanhua plans London Metal Exchange debut

Date Sep 20 2018 15:21:15 Source:Foreign media

Major Chinese broker Nanhua Futures is planning to start trading on the London Metal Exchange in the first half of next year as the market experiences a wave of fresh interest from China.

 

Nanhua's move comes as Chinese conglomerate Fosun International  0656.HK  holds talks to buy Marex Spectron, one of the biggest brokers on the LME - the world's oldest and biggest trading venue for industrial metals.

  

Chinese banks and brokers have sought to capitalize on their country's growing role as a top metals producer and consumer, but they have yet to become major players on the LME, industry sources say.

 

Many have seen their ambitious plans for trading metals like copper and aluminium hit by institutional red tape, cultural clashes and lack of clear strategy, according to the sources, including insiders at some of the Chinese groups' British operations.

 

Five Chinese institutions are already running trading operations on the LME as clearing members and industry sources said at least four others - besides Nanhua and Fosun – are considering doing so.

 

Chinese groups were attracted to the LME after the $2.2 billion takeover of the 141-year-old exchange by Hong Kong Exchanges & Clearing Ltd in 2012. 

 

Nong Yan, chief executive of Nanhua Financial (UK) Co Ltd, believes the broker can handle the tough business of LME trading. "I want Nanhua UK to be a bridge between East and West, reflecting my experience," she said in an interview.

 

    Nanhua Futures is one of China's biggest brokerages, with assets of more than 15 billion yuan ($2.2 billion), according to its website, and has already expanded into the United States and

Singapore.

 

    Yan was formerly managing director of China Merchant Securities (CMS), one of the Chinese firms in Britain that set up LME trading operations. She has also worked at established

LME brokers such as INTL FCStone and Sucden Financial. 

 

After launching LME trading, Nanhua aims to expand to other commodities and financial products, Yan said.

 

NO CLEAR STRATEGY

 

Many of the Chinese institutions moving into metals trading in London were driven by the Belt and Road Initiative, a Chinese government push to take a larger role in global trade.

 

But the push to establish LME operations in some cases lacked a clear strategy, industry sources said.   

 

"The Chinese LME members are not very active and Chinese clients are still doing the vast majority of their business through Western members," said a highly placed industry source, which declined to be identified.

 

Bank of China International (BOCI), which became the first Chinese member of the LME in 2012, is regarded as the most successful of the five, the sources said.

 

BOCI, the investment banking arm of state-backed Bank of China 601988.SS 3988.HK, built up a steady operation by servicing its parent firm's corporate clients, but the scale of its operation is relatively small.

 

The LME is committed to creating more opportunities for Chinese firms to trade on the exchange, Chief Executive Matthew Chamberlain said.

 

"We believe that Chinese demand is under-represented on the LME but that risk management continues to grow in China as more metals companies look to hedge their price risk," he said.

 

Yan at Nanhua declined to comment on her time at CMS, which she left in May, but other industry sources said it targeted Chinese clients with generous offers of credit lines.

 

The CMS British unit focused on Chinese clients, but that resulted in an unbalanced portfolio, spurring millions of dollars in margin calls on sharp market moves, another industry source said.

 

The Chinese parent has now reduced its UK metals activity, the sources said. Turnover last year fell 34 percent to $8.8 million, while operating profit slid 53 percent to $1.2 million, its financial statements showed.

 

CMS did not respond to a request for comment.

 

INTERNAL ISSUES

 

    Internal issues were a key stumbling block in the case of ICBC's 2015 tie-up with Standard Bank SBKJ.J , which combined the world's largest commercial bank, Industrial and Commercial Bank of China 601398.SS , and one of the biggest LME traders. 

 

The following year, ICBC Standard reduced its base metals business to cut costs, sources close to the bank said at the time.

 

Suspicion between Chinese executives and Westerners at Standard created a toxic atmosphere, the industry sources said.

 

ICBC Standard declined to comment.

 

GF Financial Markets (GFFM), a major Chinese brokerage owned by Shenzhen-listed GF Securities 000776.SZ, is one of only two Chinese Category 1 LME members, which can trade in the exchange's open outcry ring.

 

A shake-up in GFFM management was spurred by a clash between Chinese and Western managers, which dampened growth of the business, industry sources said.

 

GFFM Managing Director Edward Shi said in a statement: "Whilst there have been certain management changes since the acquisition, GF Group have always supported GFFM's local management and ... has seen the building of what is now a profitable business."

 

The other Category 1 LME Chinese member is CCBI Metdist, which has yet to launch expanded operations two years after China Construction Bank 601939.SS acquired a 75 percent stake in Britain's Metdist, the LME's smallest floor trader.

 

    It posted a loss of $6.7 million in the financial year to Aug. 31 last year, which it said was due to investment in expansion, after a loss of $2.6 million the year before.

Shanghai exchange to release draft on alumina futures by end-2018 or early 2019

Date Sep 20 2018 15:15:07 Source:Foreign Media


The Shanghai Futures Exchange (ShFE) aims to release a draft on an alumina futures contract in late 2018 or early 2019, an official from the bourse said on Thursday.


        "We believe that by the end of this year or by the beginning of next year we will release a draft for discussion in public," Zhang Zhiyong, the head of the non-ferrous metals department at the ShFE, told AZ China's aluminium and raw materials conference in Shanghai.


    "Maybe we can establish some rules and hold some seminars on that," Zhang added.


China's steel demand to stay firm despite U.S. trade war

Date Sep 20 2018 15:04:38 Source:Foreign media

China's steel demand will remain firm despite the country's escalating trade war with the

United States, and any efforts by Washington to "sabotage" the Chinese economy will not succeed, the head of China's steel association said.

 

"The U.S. wants Chinese demand to go down but the U.S. doesn't have the ability to command the Chinese economy," Liu Zhenjiang, president of the China Iron and Steel Association, said on the sidelines of an industry conference.

 

"The U.S. wants to sabotage the Chinese economy but China is in charge of its own economy."

 

China on Tuesday imposed fresh tariffs on $60 billion worth of U.S. imports, retaliating soon after the Trump administration slapped tariffs on $200 billion in Chinese imports as the trade war between the world's two largest economies escalates.

 

Liu said steel demand in China, the world's largest consumer of the metal alloy, will remain stable despite the trade spat, supported by increased infrastructure spending such as urban rail projects.

 

"It's hard to see a big jump in (demand) from the property market, since there are some controls from the policy side," he said.

 

Plans by the cities of Shenzhen, Suzhou and Changchun to build 44 subway lines totalling about 1,600 km (1,000 miles) are estimated to require about 80 million tonnes of steel, accounting for 10 percent of China's annual steel demand, according to calculations based on industry standards for subway design.

 

    "The current financial risk is triggered by the U.S. and it's a man-made problem," said Liu.

But some Chinese steel producers are opting for caution, limiting exports to overseas markets amid the trade dispute.

 

"It's hard to do export business," said Zhang Sanjian, board chairman Angang Group International Trade Corp.

 

"Our export volume has already declined and we have reduced our proportion of exports (to total sales)," said Zhang.

 

Last month, Baoshan Iron and Steel, China's biggest listed steelmaker, said it expects to reduce its exports to the United States in the second half of this year.

 

    China's steel exports fell 13.1 percent to 47.2 million tonnes from January to August.

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