The Shanghai Futures Exchange (SHFE) has released a draft contract on zinc futures for further discussion by commodity traders before it submits the final version to the regulator.

 

The draft contract specifies the tick value, daily price swing limits, contract value, and margin requirement for zinc futures.

 

The SHFE invited more than 100 analysts and representatives from all Shanghai-based commodity futures brokerages to a conference on Saturday to explain the details of the draft zinc contract. It will also organize conferences in Hangzhou and neighboring cities to familiarize local traders with the terms of the draft contract.

 

Exchange officials expected the proposed contract to get approval from the China Securities Regulatory Commission (CSRC) in late spring. Trading in zinc futures is expected to begin shortly after that. All infrastructure for the launch of trading in the new commodity futures contract is now in place, an official told China Daily.

 

Setting the tick value, or the minimum price movement registered, at 5 yuan (64 cents) per ton, compared to 10 yuan ($1.28) for copper and aluminum, may encourage greater market activity, analysts said. It will also better reflect supply and demand changes in the market, they said.

 

The draft contract also specifies the daily rise and fall limit at 4 percent, based on the closing price on the previous trading day. The contract allows for a wider band of price fluctuations compared with the daily limit of 3 percent for copper and aluminum.

 

These provisions have the potential to make zinc "the most actively traded metal on the SHFE in coming years", said Liu Chao, an analyst with Xiangcai Qinian Futures Co.

 

Under the draft contract, the trading margin is set at 6 percent of the contract value, compared to 5 percent for aluminum and 7 percent for copper. This margin level was chosen to reflect the price of zinc, which falls between the copper and aluminium prices.

 

The proposed contract also specifies the purity of underlying zinc must meet the internationally accepted standard of 99.995 percent, or zero zinc.

 

"Trading of zinc futures is good news for all companies in the zinc industry chain because we urgently need to hedge against risks," said Wang Jianjun, general manager of Hunan Zhuye Torch Metals Co Ltd. Based in Zhuzhou, Hunan province, the company specializes in zinc plating.

 

"The proposed contract is subject to CRSC approval, and the terms of the contract will see no big adjustments since it has received wide recognition from traders," said Mei Yuntao, senior manager of the SHFE's marketing department.

 

"Unlike copper and aluminum, which are dominated by a few major domestic producers, there are no big players in zinc," he added.

 

Rising consumption and production of zinc concentrates and ingots has greatly increased China's influence on zinc prices in global markets.

 

(China Daily February 5, 2007)