China, the world's second-largest soy oil consumer, will launch soy oil futures next Monday in the Dalian Commodity Exchange, a move that is expected to attract more participants and capital to the market.

"The introduction of soy oil futures, which has long been anticipated by crushers and traders, is a boost to the futures market," said Kang Bing, a soybean analyst with Beijing-based Jingyi Futures Co, Ltd.

Trailing only behind the United States for soy oil consumption, China consumed about 7.5 million tons last year, up from 3.67 million in 2002, according to data provided by the Dalian exchange.

"As a major soy oil consumer and producer, soy oil futures is badly needed in China," Kang said.

The launch of soy oil futures in the Dalian exchange, which also trades soybeans and soy meals, means the bourse now has a complete product line on soybean, further strengthening its position as country's biggest agriculture commodity futures exchange.

"It will definitely bring more participants, such as crushers, traders and even distributors, and capital into the market," Kang said.

Soy oil is the second commodity futures introduced this month.

Zhengzhou Commodity Exchange, located in Central China's Henan Province, will start trading white sugar futures tomorrow, offering enterprises a timely tool to hedge the fluctuating sugar prices, which have surged by nearly 30 percent in the last two months.

The addition of these two commodity futures will bring the total number of commodities traded in China's three futures exchanges to 11.

Tang Yi, a soybean futures analyst with Beijing Capital Futures Co, Ltd, said in the past soy oil crushers and distributors have had no way to hedge price-fluctuating risks.

"With the introduction of soy oil futures, all soybean-related firms will have the hedging tools on hands," said Tang.

"Initially, the capital that those risk-hedgers is likely to bring into the market will not be an impressive one," he said.

Tang predicted the white sugar contract in the Zhengzhou exchange will be able to attract more capital than the soy oil does, but the soy oil futures is still important.

"The debut of soy oil futures will win back some domestic trading giants that are currently trading soy oil futures for arbitrage in overseas market.

"They have deep pockets, some of them even made a loss of up to 200 million yuan (US$24.7 million) last year," the analyst said, declining to disclose the names of those trading companies.

After a year-long lull last year when no new commodity futures was introduced, market watchers say that many more new futures contracts are expected to get regulatory approval this year.

The last time a new futures contract was introduced was on December 22, 2004, when the futures contract on imported soybeans was offered.

China is also world's largest importer of soybeans, with more than half of its annual needs buying from overseas market.

(China Daily January 5, 2006)