The Shanghai Futures Exchange (SHFE) inaugurated its first new product of the year yesterday, with zinc futures trading getting the nod. The move was welcomed by metal-consuming industries since it may well lead to other non-ferrous metal being admitted to the futures exchange to cater to China's manufacturing needs.

"It will help increase China's influence on zinc prices worldwide and better industries' risk management capability caused by fluctuating world prices," said Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC) at the inauguration ceremony yesterday.

Metal prices for July deliveries started at 28,600 yuan (US$3,697) per ton yesterday, ending at 29,220 yuan (US$3,777) per ton after 83,930 tons were traded.

Although China is the world's biggest producer and consumer of zinc, the metal's futures and options have so far been traded only on the London Metals Exchange, where prices rose over 120 percent last year.

Driven upward by spot prices for the metal and the unquenchable industrial thirst for it, the SHFE has now launched zinc futures contracts after long deliberations.

"The non-ferrous metal industry has long expected zinc futures trading," said Wang Gongmin, vice chairman of the China Non-ferrous Metals Industry Association.

"The absence of a Chinese zinc price control mechanism has sheepishly tethered industry participants to the ebb and flow of international markets, rendering them incapable of accurately reflecting the supply and demand for the metal," he said.

"The new trading in zinc futures will cause ripple effects influence in the non-ferrous and futures markets since domestic enterprises now benefit from an effective platform upon which to hedge against fluctuating price risks."

The development of a Chinese commodity futures market will be acclaimed by hundreds of thousands of small manufacturers, since most large companies and state-owned enterprises already recoup their pricing risk-taking maneuvers in overseas commodities markets.

Shanghai Vice Mayor Feng Guoqin yesterday said the launch was significant since it will not only boost zinc trading in China but also the overall global competitiveness of the Shanghai futures market.

The introduction of zinc futures has come amidst a call from regulators to widen investment options. Last year, 33.5 billion yuan (US$4.3 billion) of annual investment funds in the stock market were used in transactions that totaled close to half of China's economy in value.

The zinc futures trading will also have to contend with new government rules issued earlier this month, which opens this trading to financial institutions once again, allowing them to raise funds and offer securities for futures trading.

(China Daily March 27, 2007)