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China’s CSRC nods 6 industrial options launch in Jun-Aug

The China Securities Regulatory Commission (CSRC), the country’s governing body of all futures exchanges, has granted its approval, allowing three commodity exchanges to launch options contracts for six industrial products over June-August for trading, according to its official post on June 12.

The first of the new options contracts to be launched will be thermal coal on June 30 on the Zhengzhou Commodity Exchange (ZCE) in Zhengzhou, Central China’s Henan province. This will be followed by options of three petrochemical products – namely Linear Low Density Polyethylene (LLDPE), Polypropylene (PP), and Polyvinyl Chloride (PVC) – on the Dalian Commodity Exchange (DCE) headquartered in Dalian, Northeast China’s Liaoning, on July 6, and options on aluminum and zinc on the Shanghai Futures Exchange (SHFE) on August 10.

“All the six options are to further satisfy the needs of the market for more customized and precise risk management,” CSRC stated in its post. “All the commodities are crucial bulk commodities, and their futures contracts on the three exchanges, since the launch for trading, have helped to maintain stability in their respective markets – especially those with the greater participation of industrial enterprises.”

ZCE will conduct a trading system test on June 20 to guarantee the smooth operations of the coal options contracts when launched, according to ZCE, China’s exchange mainly for the trading of agricultural products derivatives.

DCE, the country’s dominant exchange for industrial raw materials such as coal and iron ore, confirmed that “this is the first time for CSRC to approve the simultaneous launch of three options on our platform”, and “the petrochemical products are expected to moderate price volatility in the three markets”. Exchange already trades iron ore, LPG, corn and soybean meal options.

In 2019, China produced 22.47 million tonnes of PP, 19.25 million tonnes of PVC, and 7.84 million tonnes of LLDPE, while their price volatility ranged 36%, 30%, and 37% over January-May, according to DCE.

Headquartered in Shanghai and mainly hosting finished ferrous and nonferrous products, SHFE already has copper, gold, and natural rubber options listed as of now.

In the derivatives market, futures, swaps and options are three common contracts enabling investors to hedge against the risks in the physical trading, Mysteel Global understands.

Written by Hongmei Li, li.hongmei@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com