China May Launch Zinc FuturesSHANGHAI (Interfax-China) -- The Shanghai Futures Exchange (SHFE) may soon launch zinc futures contracts, although the implementation date is unclear as the exchange is still awaiting final approval from the China Securities Regulatory Commission (CSRC), an official with the SHFE said.
"We have heard that the launch date may be March 26, but as yet, there has not been any official announcement," China National Cereals, Oils and Foodstuffs Corp. (COFCO) analyst, Huang Chengkang, said.
China is both the world's largest zinc producer and consumer and is in need of a zinc futures market in order to minimize losses from price fluctuations in the international zinc market.
"Zinc futures in China will provide an alternative to companies looking to hedge and balance prices," analyst with East Asian Futures, Pang Ying, said.
Current zinc futures trading on the London Metal Exchange (LME) is limited to China's leading zinc producers, including Zhongjin Lingnan Nonfemet, Huludao Zinc Smelter, Zhuzhou Smelter Group and Chihong Zinc and Germanium Co. Ltd.
Steel companies have also welcomed the upcoming zinc futures launch, as 46% of China's zinc supply is used in the production of galvanized steel sheets. Galvanized steel sheets are high-grade steel products mainly used in automobile manufacturing.
Huang believes that a mature market and an active price movement on the world market has spurred the SHFE to launch zinc futures trading one year after its proposal to the CSRC. Global zinc prices increased almost 50% last year.
The SHFE began a zinc futures trading trial this week and will finish on Friday before the official launch. Long-distance transaction systems and market information transmission systems for off-floor traders are already in place, according to officials from the SHFE.
Huang predicts that China's growing zinc capacity will affect global prices. The Chinese government recently proposed to eliminate outdated production capacity in the industry, limit over-expansion and maintain a supply and demand balance for lead and zinc.
China will no longer approve new zinc smelting projects with an annual capacity below 100,000 tonnes and current zinc smelters with an annual capacity under 100,000 tonnes will be gradually phased out.
Pang predicts the domestic futures market will affect, but not dominate global prices. "The LME will continue to set global prices," Pang said.
China's zinc output hit 3.15 million metric tonnes last year, up 16.31% from the previous year, which was due to improved production techniques and rising global prices, according to the China Nonferrous Metals Industry Association.
China's output accounted for approximately 30% of world's total, ranking the world's top producer for 15 consecutive years. Antaike, a state-owned nonferrous metals industry consultancy, predicts China's zinc output will rise 400,000 metric tonnes this year to 3.55 million metric tonnes.
China's zinc consumption is set to rise 10% to 3.7 million or 3.8 million tonnes, according to Antaike. Last year's demand was around 3.4 million to 3.5 million metric tonnes.
Huang also predicts that China will become a zinc exporter in one or two years time due to rapid growth in domestic capacity.
China was a net importer of refined zinc last year, with total net imports of 191,000 tonnes in 2006, down 59.7% from the previous year.
China reported a zinc export surge of 558.4% to 71,377 tonnes in January, while zinc imports fell 12% to 14,485 tonnes, according to statistics released by the General Administration of Customs today.
Zinc prices on the London Metals Exchange are currently trading at $3,236 per tonne.
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