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BIZCHINA / Weekly Roundup

Promising future for futures exchange

By Wang Lan (China Daily)
Updated: 2007-09-17 14:45

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A broker in Shanghai Futures Exchange makes telephone?contact? on August
25. The bourse is exerting an increasing influence on the global pricing
of such key commodities as copper, aluminum and natural rubber.
?[Newsphoto]?

Shanghai Futures Exchange (SHFE), the biggest of the three commodities
futures exchanges in China, is exerting an increasing influence on the
global pricing of such key commodities as copper, aluminum and natural
rubber.

Teng Jiawei, executive vice-president of SHFE, says: "China's increasing
pricing power in the international commodities markets has helped
guarantee national economic security that has a far-reaching impact on
the country's long-term development."

For many physical commodities, cash-market participants often base spot
and forward prices on the futures prices that are discovered in the
competitive, open-auction markets of futures exchanges.

SHFE is emerging as an important pricing center for non-ferrous metals,
copper in particular, second only to the London Metal Exchange (LME).
Statistics show the coefficient index, an indicator reflecting the
correlation between LME copper prices and those in Shanghai, has
increased from less than 10 percent to 40 percent in the past several
years.

Industry analysts say the weekly inventory report published by SHFE every
Friday usually has a great impact on LME's copper prices. For example,
the price of copper futures on LME jumped 2.2 percent on August 24 to
close at US$7,430 per ton following reports that SHFE's inventory of the
metal had dropped 22.5 percent, or 16,000 tons.

Because of the time difference between Shanghai and London, the pit
trading on SHFE is 11 hours ahead of the trading on LME, and the closing
prices on SHFE usually have a huge influence on the opening prices on LME.

What's more, "the copper prices quoted on SHFE serve as the most
important barometer for producers and consumers all over the world after
trading hours on the LME", says Li Jingyuan, an analyst at Haifu Futures
Co.

William Adams, senior metals analyst of BaseMetals.com,says: "We feel
China will remain a force to be reckoned with on the demand side," adding
the fluctuations of Shanghai's inventory levels and futures positions
have become a major consideration of international traders when they
assess the trend of the international copper market.

A benchmark

Copper futures prices quoted on SHFE have been taken as a benchmark for
major copper producers and consumers in the world. A case in point is
Chile. The biggest copper producer, whose output accounts for one-third
of the world total, is keeping a close eye on the inventory and price
information on SHFE to direct its production activities.

Peter Sellars, CEO of Sempra Metals Ltd, a leading international metal
trader, says: "Future is never exactly like the past. There are unique
challenges in populous Asian economies, especially China."

Industry experts say Shanghai, as an emerging pricing center in the
world, helps to secure "China's voice" in the global market to better
serve the national economy.

"Emergence of a strong Chinese demand growth has raised global demand
growth above expected supply growth. Trend growth rates globally are high
and accelerating," says Jim Lennon, executive director of commodities
research of Macquarie Bank, an Australian financial and banking services
provider.

(For more biz stories, please visit Industry Updates)

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