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Eye on Futures

by 5m Editor
14 December 2007, at 8:00am

CHINA - Financial industry leaders have reaffirmed the importance of developing the futures market in China. They beleiv it will aid balanced and sustainable economic growth.

Shang Fulin, head of the China Securities Regulatory Commission (CSRC), stressed the importance of steady development of the futures market at the commission's meeting last week.

Economists have long held that the futures market plays a crucial role in stabilizing commodity prices by facilitating timely price discoveries and enabling growers, wholesalers and processors to make long-term plans.

"Futures markets allow growers and buyers to hedge against short-term price fluctuations caused by temporary imbalances in supply and demand," said Li Jingyuan, an analyst at Haitong Futures Co in Shanghai.

The futures market is widely seen to have a real, though indirect, impact on the daily lives of the people. Its pricing role is of particular significance when inflation is fueled, at least partly, by disruptions in the supply of agricultural produce like pork.

Introductions next year

The Dalian Commodity Exchange is planning to introduce a batch of new futures contracts in the coming year. The Dalian bourse, one of three commodity exchanges on the mainland, specializes in agricultural produce. The other two are the Shanghai Futures Exchange and the Zhengzhou Commodity Exchange.

Qiao Jinhui, director of the Zhengzhou exchange's communications department, said the bourse is also taking steps to launch new futures products, including contracts on early long-grain non-glutinous rice, raw silk, natural gas, pure alcohol and methyl alcohol.

Meanwhile, the Shanghai Futures Exchange, which specialises in metal and energy products, has recently received approval to launch gold futures. It is also planning to introduce steel futures contracts.

"Several new futures contracts on agricultural produce are being researched by the Dalian bourse," said Wang Weiyun, director of the Dalian exchange's communications department. "We also want to improve the design of the existing contracts to enhance market efficiency."

Of those being researched, priority has been given to hog futures contracts, because the continual rise in the price of pork has been blamed as a major factor in the build-up of inflationary pressure that has driven the price index to a projected 4.4 per cent this year.

Push restructuring

Analysts said the introduction of hog futures would help stabilise pork prices and push forward the process of restructuring the industry. Pork prices have increased sharply over the past few months, driving the inflation rate over targeted levels and causing widespread public concern. Economists said speeding up development of the commodity futures markets would be beneficial to all.

By providing a transparent pricing system with constantly updated and readily accessible price information, commodity futures markets can give guidance for manufacturers and farmers.

"The development of futures markets, leading to improvement in price discoveries for a wide range of commodities - including industrial raw materials and farm produce - will help stabilize the spot market and minimise the possible impact on consumers caused by sharp price swings," said Ma Xiaofei, an analyst at China International (Shanghai) Futures Co.

5m Editor