Financial Times: Listing of Nickel, Tin Futures Approved to Better Serve Real Economy

Updated on Mar 18,2015

By Gao Guohua

On March 14, the China Securities Regulatory Commission (CSRC) approved the listing of nickel and tin futures products on the Shanghai Futures Exchange (SHFE), which issued contract specifications and relevant trading and delivery rules of nickel and tin futures on the day. Listing and trading of the two futures products will start on March 27, thus rounding out the products sequence of base metal futures on China’s commodity futures market, after the listing of copper, aluminum, lead and zinc futures, and signaling further promotion of the clustering effect of the futures market in serving the real economy.

Listing of nickel and tin futures: to make difference

Sources say, nickel and tin are both mature commodity futures products around the world, constituting the 6 industrial non-ferrous base metals with copper, aluminum, lead and zinc. In recent years, under the impact of production cost, market supply and demand and international market price, the prices of nickel and tin have seen major fluctuations, largely affecting their production, trading and consumption, so that Chinese enterprises hold a strong hedging demand as China is the world’s largest producer and consumer of nickel and tin. Listing of nickel and tin futures is of great significance for ensuring smooth operation of China’s nickel and tin markets, enhancing the support capacity of nickel and tin resources, and promoting stable and sustainable development of nickel and tin industries.

“The London Metal Exchange (LME) has witnessed the listing of nonferrous metal futures products of copper, aluminum, lead, zinc, nickel and tin and the launch of LMEX having the 6 base metals as constituent commodities, while China has only copper, aluminum, lead and zinc listed. The simultaneous listing of nickel and tin products will help perfect the 6 base metal futures sequence in China and strengthen the clustering effect of nonferrous metal futures products in serving the real economy, hence higher ability of international pricing of China’s nickel and tin industries and their sustainable development”, relevant SHFE official said that the simultaneous listing of nickel and tin will enrich the constituent commodities of the Industrial Metal Commodity Index on the bourse, enhance the industry representativeness, dispersibility and anti-manipulation of the index, and optimize index number construction, so as to better reflect the features of overall price changes in China’s nonferrous industry and provide more reference for the government’s decision making about macroeconomic regulation and control.

Besides, enterprises on industrial chains of nickel and tin have a strong demand for the listing of nickel and tin futures products, which will be highly meaningful to the sustainable development of nickel and tin industries in China and more prominent function of nonferrous metal futures market in serving the real economy. Firstly, by exerting the functions of price discovery and hedging in the futures market, a market-oriented pricing mechanism in nickel and tin industries will be established; secondly, effective risk management tools will be guaranteed for upstream and downstream enterprises on nickel and tin industrial chains; thirdly, it will help enhance the international pricing capacity of China’s nickel and tin industries, optimize industrial structure and ensure sustainable development of the industries; fourthly, copper, aluminum, lead, zinc, nickel and tin are the 6 base metals most commonly used industrially, so that listing of nickel and tin futures products will facilitate the completion of China’s nonferrous metal futures sequence and boost the clustering effect of nonferrous futures products in serving the real economy; fifthly, the listing will also aid in perfecting the Industrial Metal Commodity Index and seeking and developing institutional investors.

Contract specifications observe the market operation law

According to the futures contract of tin issued by the SHFE, the trading code of tin futures to be listed will be SN, whose minimum trading unit should be 1 ton per contract, with a minimum trade margin at 5% of the contract value and a daily price limit within 4% above or below the settlement price of the previous trading day. And the trading code of nickel futures will be NI, whose minimum trading unit should be 1 ton per contract, with a minimum trade margin at 5% of the contract value and a daily price limit within 4% above or below the settlement price of the previous trading day.

Relevant SHFE official said that as for contract size design, the SHFE was trying to fully exert the functions of the futures market, provide enterprises with effective hedging tools and better serve the national economy by observing the operation laws of the spot market and the futures market. Firstly, the choice of underlyings for delivery has fully taken into account the spot market conditions. The underlying nickel cathode abides by the National Standard of GB/T 6516-2010, having the most widely used National Standard rated product Ni9996 as the standard product, while Ni9999 mostly used in electroplating and high-end alloy industries as substitution. Secondly, trading and delivery units are reasonably designed. The design of the units for nickel and tin futures meets the hedging demand of industry clients and need for investment of average participants. The design of delivery units mainly considers differences in domestic and overseas trading habits and characteristics of futures delivery, which should facilitate investors’ utilization of both domestic and overseas markets. Thirdly, measures for risk control and management are scientifically designed, and formulation of parameters like margin, daily price limit and position limit is based on data analysis and completed by considering trading cost, market liquidity and risk control. Fourthly, brand registration fully shows implementation of relevant national industrial policies by market-oriented means. Fifthly, delivery warehouses are reasonably placed, as the placement of delivery warehouses plays an important role in the sound operation and function exertion of listed futures contracts.

Risk prevention kept in mind always

Though enterprises are looking passionately forward to the listing of nickel and tin futures, relevant SHFE official reminded that despite some properties similar to those of copper, aluminum, lead and zinc, nickel and tin bear their respective characteristics, which means investors should acquire full knowledge of the attributes of nickel and tin products, their respective industry policies and traits of spot market operation, and understand contract specifications of nickel and tin futures, enhance risk awareness and launch risk prevention measures.

Firstly, nickel and tin enterprises should stick to the principle of having futures trading serve enterprises’ production and operation, well utilizing futures market tools to serve enterprises in controlling material costs, guaranteeing product profits and reasonable allocation of resources, thus ensuring the continuity and stability of enterprises’ production and operation.

Secondly, investors should fully understand the contract specifications of nickel and tin futures, as well as the fluctuation characteristics of nickel and tin markets.

The SHFE also said that they would continue to provide market training and investor education to ensure smooth listing and steady operation of nickel and tin futures while effectively exerting the market functions.