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Newly launched commodities bourse Hong Kong Mercantile Exchange (HKMEx) will help China gain more leverage over commodity price-setting by taking advantage of what the city has to offer, according to its chairman.
“Having the biggest say in how and where the prices are set is obviously our goal. Given enough time, we will be able to do that,” HKMEx chairman Barry Cheung told EJ Insight.
China, the world’s largest consumer of commodities such as coal, iron ore and copper, has largely been sidelined in the setting of global commodity prices.
“A major advantage of being part of China makes the city a perfect bridge that brings together mainland and international customers who can trade on our platform,” Cheung said.
Hong Kong has other advantages such as a free economy with no restriction on foreign exchange and a market that is well regulated. It is also backed by abundant liquidity and rule of law, he said.
In May, the exchange introduced a one-kilogram or 32-troy ounce gold futures product offered in U.S. dollars with physical delivery in Hong Kong. The trade volume has reached 3,280 contracts per day in 11 trading days this month, up 42.8 percent from 2,297 contracts last month.
“The trade volume has seen good, steady increase and there is increasing acceptance for this contract in the market, and the volume is quite respectable for a brand-new exchange,” Cheung said, adding that the trade volume would be significantly higher once the contract is known to more people.
Gold contract with physical delivery appeals to commercial customers and investors.
“The contract allows people in the gold business to trade in the cash market and at the same time use futures to hedge risk and lock in price. That appeals to investors as well,” he said.
Gold for August delivery held steady below US$1,600 per ounce on Friday in Hong Kong after eurozone leaders agreed on a rescue plan for Greece. But the price is range-bound, supported by fresh fears of moderating economic growth in China.
HSBC’s “flash” China manufacturing PMI fell unexpectedly to 48.9 in July from 50.1 in June, the first time it dipped below 50 since July 2010.
Meanwhile, the HKMEx started trading Friday a U.S. dollar-denominated 1,000-troy ounce silver futures contract to tap into expanding demand in China.
The contract for September delivery was quoted at US$39.25 an ounce with volumes at 1,138 contracts at 7.57pm Friday, Hong Kong time.
Between 2008 and 2010, demand for silver rose 67 percent in China and 17 percent globally to reach 7,495 tons and 32,870 tons, respectively, according to HKMEx data.
Apart from gold and silver, the exchange is also looking at rolling out futures contracts for platinum and palladium this year. “That will complete the whole range of precious metals and help firm up Hong Kong’s position as a premium center of precious metals,” Cheung said.
Yuan-denominated gold and silver contracts are also to be introduced in September or October.
These products would help increase the circulation of the currency in the city which was designated by Beijing as an offshore renminbi center in July last year.
“The platform would provide more renminbi products in the market and more people can use the currency to buy and trade things. Moreover, it would attract more mainland customers to trade here,” Cheung said.
Copyright: Hong Kong Economic Journal
