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The Shanghai Futures Exchange is set to start zinc trading late this month, in its latest move to provide more hedging and arbitrage tools to domestic industries.

 

"We plan to start it on March 26, though the date may still be adjusted," a source at the exchange said yesterday.

 

Zinc is a bluish-white metal that can be applied as a coating to protect steel from corrosion. China is the world's top zinc user.

 

Contract zinc prices more than doubled in benchmark London Metal Exchange trading amid a strong global pursuit of nonferrous metals in 2006, though prices have declined 20 percent so far this year.

 

The new contracts in Shanghai will trade zinc that's 99.995 percent pure, similar to those on the LME.

 

Analysts said the same requirement in grade could pave the way for arbitrage trading between Shanghai and London. Arbitrage is the practice of buying and selling the same security or asset in different markets to capture a profit on the price difference.

 

"Besides, there are few limits in imports and exports in China for zinc, which could also make arbitrage come easy," Minmetals StarFutures analyst Cheng Xiongfei wrote in a recent note.

 

The Shanghai bourse, which currently trades copper, aluminum, natural rubber and fuel oil, is the busiest of China's three commodity futures exchanges. Other contracts that the Shanghai exchange is studying include steel rods, nickel and fuel ethanol.

 

Zinc could be the first futures contract approved by authorities to trade this year. Last year, China launched contracts for white sugar and PTA, a key feedstock chemical, on the Zhengzhou Commodity Exchange and soybean oil futures on the Dalian Commodity Exchange as the country seeks to gain more say in pricing in the global commodities market.

 

For example, Shanghai's copper contracts, pushed by its huge trading volume, have already been able to influence those on the LME.

 

Turnover on China's three futures exchanges rose 56 percent to a record 21 trillion yuan (US$2.7 trillion) last year. Trading volume rose 39 percent to 449.5 million lots, according to the China Futures Association

 

(Shanghai Daily March 14, 2007)