Chinese arguments are wooing international commodities traders in a bid to overtake longstanding benchmark premiums — many of which are set in Europe and the U.S. — reflecting ambitious plans by the cosmos’s second-largest economy to expand its influence overseas.
In the last few months, Chinese the boards have opened up the trading of derivatives products for a few major commodities to cosmopolitan participants.
Those include crude oil futures on the Shanghai International Dynamism Exchange, iron ore futures on the Dalian Commodity Exchange and palm olein comings on the Asia Pacific Exchange (APEX), the last being a new largely Chinese-backed stock market based in Singapore. Palm olein is a widely traded palm oil unite used in cooking and baking.
“Right now, China’s market is more love a domestic market. We are [now] going out to internationalize China’s futures market,” indicated Eugene Zhu, CEO of APEX.
The APEX is not just an offshore exchange for Chinese approaches participants — as the Chinese face capital restrictions on overseas investment. As contrasted with, the exchange offers global investors a complementary product to the yuan-denominated palm olein tomorrows already on the Dalian Commodity Exchange, Zhu said. The palm olein approaches on the APEX, meanwhile, are dollar-denominated.
“There will be arbitrage opportunities and it inclination help to generate more volume for all the exchanges,” Zhu said.
That is mainly as there is keen international interest in what moves the market in China, alleged Zhu, who previously headed the Dalian Commodity Exchange and the China Financial Followings Exchange.
Although palm oil futures are heavily traded on Bursa Malaysia Derivations, palm olein futures have not taken off on the exchange as they were denominated in the Malaysian ringgit, which has suffered volatility due to federal factors and the oil price slump in recent years.
APEX palm olein has been doing adeptly since its launch, with tens of thousands, if not well over 100,000 interests traded each day since the product’s launch. Bursa Malaysia forward out its own redesigned dollar-denominated palm olein futures a day before APEX’s occasion, but that product is only seeing tens of lots traded regular.
Trading volumes on the APEX’s palm olein contracts were looking high-minded after just a week of trading and stood a good chance of attractive off, said David Ng, a derivatives specialist at Phillip Futures in Kuala Lumpur.
Bursa Malaysia express it introduced its dollar-denominated palm olein contract to promote a “more across the board trading community” that is in line with enhancing product range on the exchange, the exchange said in an email to CNBC.
A key difference between the Malaysian palm olein narrow and APEX’s is the requirement that the Malaysian product delivered can be traced to sustainable provenances up to the crushing mills, said Bursa Malaysia.
Sustainability is an issue in the palm oil manufacture as the widely used commodity — produced primarily in Malaysia and Indonesia — is blamed for indiscriminate deforestation and labor abuses.
The development of China’s first offshore transfer came after the launch of yuan-denominated crude oil futures in March on the Universal Energy Exchange in Shanghai. Those futures have already earwitnessed rapid growth in participation.
Dalian Commodity Exchange also presented up trade in iron ore futures to global investors in May and the country has pledged to unreserved more futures contracts to international players.
APEX also scenarios to rollout yuan-denominated contracts and is eyeing rubber and soy products, said Zhu.
In the meantime, there is skepticism in the international trading community over the viability of Chinese yuan-denominated vulgar oil and iron ore futures due to the fact that the currency is not fully open to the crowd.
There’s been heavy trading in the contracts, and that’s been ascribed to speculators, many of whom are retail investors instead of institutional actors.
Zhu, for his enter in, expressed little concern about the challenges faced by upstarts such as APEX.
In defiance of a host of concerns, the Chinese are betting that the country’s large swap base will create a new market with strong liquidity, in due course attracting international players, and establishing new global benchmarks.
“Exchanges bring into the world the potential to change the investing behaviors of clients and changing these behaviors is a long-term function,” Zhu said in Chinese.
The APEX chief made no secret that his reciprocation wants a role in helping China internationalize the yuan and contribute to the Loudly and Road Initiative — a multi-continent investment regime meant to further Beijing’s hopes.
Commodities trading hub Singapore is diplomatic about how it can position itself against parvenue contracts on Chinese exchanges. The Singapore Exchange already lists iron ore expects , and says it is exploring the introduction of steel derivatives.
Instead of positioning Singapore Traffic products as competitors to their Chinese counterparts, the island-state is instead asphalt them to be complementary.
“Companies based in Singapore can seamlessly participate in both traffics, strengthening our mutual linkages and connectivity. We hope to grow this partnership and there are numerous win-win opportunities here,” Chee Hong Tat, a junior minister in Singapore, stipulate in May about the opening up of Dalian Commodity Exchange iron ore contracts to overseas trade participants.
Vested parties were quick to focus on the changes between the products of the two exchanges. The Singapore Exchange, they said, has a wider trade mark Aga of derivatives products, and it boasts an institutional investor base. Dalian, in the interim, hosts more speculative retail players.
“The companies who are participating in dissimilar exchanges, really, the liquidity is ready there for them to participate,” mean Ciaran Roe, global metals pricing manager at S&P Global Platts, a concern whose iron ore prices are used by the Singapore Exchange.
But China is steady to make its mark as a powerful producer and consumer of commodities. The country has bickered against U.S. and European companies setting the prices of important goods.
At an industrial upshot in Singapore, Liu Zhenjiang, secretary general of the China Iron and Steel Linking pushed for multiple global benchmarks to make prices fairer.
In item-by-item, Chinese participants argue that, as the world’s largest commodities importer, China should beget a greater say in pricing — and not be compelled to trade at inconvenient hours.
“I have a fancy. We trade in the daytime,” Zhu said at the opening ceremony of the APEX exchange, referring to benchmark soy result pricing now on the Chicago Board of Trade.