By Bloomberg News
Oct. 15 (Bloomberg) -- Dalian Commodity Exchange, China’s largest derivatives market, may introduce energy, coking coal and live-hog futures contracts to spur trading volume.
The bourse also aims to “be more than just agricultural or energy-oriented,” President Liu Xingqiang said in an Oct. 12 interview in Dalian. “We’re working on products that can be traded more easily as investments; that are more financial in nature. It will be a global exchange.” The biggest contracts now include soybeans, soybean oil, palm oil and soybean meal.
Futures trading in China, the third-largest economy, jumped 47 percent in the first half from a year ago, according to data compiled by the Futures Industry Association, as soybean and copper imports climbed to records. CME Group Inc., the world’s largest futures exchange, predicts “great growth” in Asian derivatives. Stricter government controls mean approval of new contracts in China takes longer than in the West, Liu said.
China’s “growth in demand for raw materials still outstrips that of any other major country,” said Nick Ronalds, executive director for FIA Asia. The “exchanges are likely to continue to grow faster than those of the rest of the world. In a few years, if it liberalizes its markets in time, they could be taking on the Western giants head-to-head.”
The country is the world’s biggest consumer of iron ore, copper, rice and soybeans. Chinese buying helped push prices of raw materials up by 41 percent this year, as measured by the Standard & Poor’s GSCI index of 24 futures.
Trading Surge
Dalian boosted trade by 69 percent in 2008, the most among the world’s top 10 derivatives exchanges, and had the biggest volume of the three Chinese markets in the first half, the FIA said. Its other contracts are corn, linear low density polyethylene and polyvinyl chloride, its Web site said.
The Dalian bourse, the Shanghai Futures Exchange and the Zhengzhou Commodity Exchange increased trading to 415.6 million contracts from January to June from 282.7 million a year earlier, the FIA said. That compared with a contraction of 27 percent for the CME Group, it said.
Terry Duffy, Executive Chairman of the CME Group, said on Oct. 8 he is working on “new relationships” in China and India. “Managing risks in all products is going to continue to become more global and I don’t see how China is going to stay out of that equation,” he said.
The Dalian exchange is studying coking coal, crude oil, electricity, petrochemical products and live-hog futures, according to a statement. It will “allow a fair amount of speculation to ensure fluidity of the market,” Liu said.
Price Impact
Bringing on new products takes longer than in Western countries because the government needs to study their impact on supply, prices and the developing economy, Liu said. These projects can be promoted only when policymakers and regulators see them as “manageable and foreseeable,” he said.
The exchange, industries and legislators have lobbied the government to allow a live-hog contract, according to the exchange’s Web site. The government needs to study what impact the contract will have on prices in a country that has half the world’s live hogs, Liu said. China, a nation of 1.3 billion people, is the biggest consumer and producer of pork.
“Keeping people fed is the number one priority for each successive government” in China, Liu said. The bourse is increasing the number of co-operation agreements with foreign exchanges on products, trading methods and staff exchanges.
“Here you are looking at all Chinese faces,” Liu said, referring to two of his colleagues. “In not too long, you will see Westerners on the Dalian Commodity Exchange team.”
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