Money

Focus turns to futures trading as commodities surge

By Chen Jia (China Daily)
Updated: 2011-02-10 13:28

BEIJING - Persistently high international commodity prices have increased the Chinese government's concern about surging inflation, and financial experts advised taking better advantage of commodity futures to hedge risks.

Shang Fulin, chairman of the China Securities Regulatory Commission, urged tightening supervision of futures investors and limit speculation. Futures companies should improve their operating abilities by increasing investments and accelerating mergers and acquisitions, Shang said.

Along with the growing demand for food and raw materials, international commodity prices will continue to increase in 2011 amid the sluggish recovery of the global economy, a JPMorgan Chase & Co report predicted. It said surging food and energy costs will further increase inflationary pressures on emerging economies.

JPMorgan Chase said that the global shortage of agricultural products will continue in 2011 because of bad weather and insufficient supplies in many countries will lift commodity prices to new records, especially crude oil, wheat, corn and copper.

Wheat futures advanced in the eight days before the Chinese Lunar New Year holidays, the longest winning streak in more than three years, prompting the government to boost grain imports. Corn futures have surged more than 80 percent in the past 12 months.

"China will consume more commodities in the coming years when it accelerates industrial development, and futures can help to control investment risks," Rob Nichols, president of the US Financial Services Forum, said at China International Futures Co in Beijing on Jan 24.

Although the country's inflation slowed to a year-on-year rise of 4.6 percent in December, from a 28-month high of 5.1 percent in November, the increase in wage and production costs and excess liquidity will keep the consumer price index (CPI) at a high level, a report from Nomura International Limited in Hong Kong said.

Related readings:  Commodities spearhead global recovery  Profits, commodities fuel rise  Draft issued on QFII index futures trading

The Shanghai Futures Exchange announced it will study commodity index futures in 2011, and it has boosted risk controls during the seven-days holidays.

The futures trade value in China reached 308.665 trillion yuan ($46.88 trillion) last year, a year-on-year increase of 136.5 percent, the China Futures Association said on its website.

China contributed 43 percent of the global commodity futures trading volume in 2009, becoming the biggest commodity futures market in the world, according to the China Securities Regulatory Commission.

In 2011 more institutional investors, including State-owned companies, will come into the futures market and inject more money to hedge the risks of soaring prices, said Chen Donghua, president of China International Futures.

On Jan 24, the Chinese government issued a draft regulation for foreign investors under the Qualified Foreign Institutional Investors (QFII) program to trade stock index futures only for hedging.

At present institutional investors account for less than 5 percent in the Chinese futures market. Only a small number of fund management companies, banks and investors under the QFII program play the market.