China strives to change global commodity trade

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Investors talk in front of an electronic board displaying stock information at a brokerage house in Kaifeng, Henan Province.

China Daily | Reuters

I have a dream. We exchange during the day.

Eugene Zhu

CEO, Asia-Pacific Stock Exchange

APEX is not just an offshore exchange for Chinese futures participants, as the Chinese face capital restrictions on overseas investments. Instead, the exchange offers global investors a complementary product to the yuan-denominated palm olein futures contracts already on the Dalian Stock Exchange, Zhu said. APEX palm olein futures contracts are denominated in dollars.

“There will be arbitrage opportunities and it will help generate more volume for all trades,” Zhu said.

This is especially since there is strong international interest in what moves the market in China, said Zhu, who previously headed the Dalian Commodities Exchange and the China Futures Exchange.

Although palm oil futures are heavily traded on derivatives of Bursa Malaysia, palm olein futures did not take off on the exchange as they were denominated in Malaysian ringgit, which has suffered from volatility due to political factors and falling oil prices in recent years.

APEX palm olein has been doing well since its launch, with tens of thousands, if not over 100,000 lots traded every day since the product’s launch. Bursa Malaysia launched its own dollar-denominated palm olein futures a day before APEX opened, but this product only sees dozens of lots traded daily.

APEX palm olein contract trading volumes looked good after just a week of trading and had a good chance of taking off, said David Ng, derivatives specialist at Phillip Futures in Kuala Lumpur.

Bursa Malaysia said it introduced its dollar-denominated palm olein contract to promote a “more inclusive trading community” that is in line with improving product diversity on the exchange, the exchange said in an email. at CNBC.

A key difference between the Malaysian palm olein contract and the APEX contract is the requirement that Malaysian product delivered can be traced back from sustainable sources to crushers, Bursa Malaysia said.

Sustainability is an issue in the palm oil industry, as the widely used product – produced mainly in Malaysia and Indonesia – is blamed for rampant deforestation and labor abuse.

Chinese ambitions

The development of China’s first offshore stock exchange came after the launch in March of yuan-denominated crude oil futures on the Shanghai International Energy Exchange. These futures have already seen rapid growth in participation.

Dalian Commodity Exchange also opened up trading in iron ore futures to global investors in May and the country has pledged to open more futures contracts to international players.

APEX also plans to roll out yuan-denominated contracts and is considering rubber and soy products, Zhu said.

Meanwhile, the international trading community is skeptical of the viability of Chinese yuan-denominated crude oil and iron ore futures contracts due to the currency not being fully open to the world.

There have been heavy transactions on the contracts, and this has been attributed to speculators, many of whom are retail investors rather than institutional players.

Zhu, for his part, said he had little concern for the challenges faced by upstarts such as APEX.

Despite many concerns, the Chinese are betting that the country’s large commercial base will create a new market with high liquidity, eventually attracting international players and establishing new global benchmarks.

“The exchanges have the potential to change the investment behaviors of clients and to change these behaviours is a long-term process, ”Zhu said in Chinese.

The APEX chief made no secret that his exchange wanted to play a role in helping China internationalize the yuan and contribute to the Belt and Road Initiative, a multicontinental investment regime aimed at to promote Beijing’s ambitions.

Complement, not compete

Singapore’s commodity trading hub is diplomatic about how it can position itself against contracts reached on Chinese stock exchanges. The The Singapore Stock Exchange already lists iron ore futures and says it is considering the introduction of steel derivatives.

Instead of positioning the products of the Singapore Stock Exchange as competitors of their Chinese counterparts, the island state rather presents them as complementary.

“Singapore-based companies can seamlessly participate in both exchanges, strengthening our mutual ties and connectivity. We hope to develop this partnership and there are many win-win opportunities here, ”said Chee Hong Tat, a young minister in Singapore, in May of opening the Dalian Commodity Exchange iron ore contracts to market players. trade.

Invested parties quickly highlighted the differences between the products of the two exchanges. The Singapore Stock Exchange, they said, offers a wider range of derivatives and has a base of institutional investors. Dalian, meanwhile, welcomes more speculative retail players.

“Companies that participate in different exchanges, really, the liquidity is ready for their participation,” said Ciaran Roe, global head of metals pricing at S&P Global Platts, a company whose iron ore prices are used by the Singapore Stock Exchange.

But China is determined to establish itself as a powerful producer and consumer of raw materials. The country has opposed American and European companies that set the prices of important goods.

At an industrial event in Singapore, Liu Zhenjiang, general secretary of the China Iron and Steel Association advocated for several global benchmarks to make prices fairer.

In particular, Chinese participants argue that as the world’s largest importer of raw materials, China should have more say in pricing and not be forced to negotiate at inconvenient hours.

“I have a dream. We trade during the day,” Zhu said at the opening ceremony of the APEX platform, referring to the benchmark prices for soy products currently listed on the Chicago Board of Trade. .

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