The Shanghai Futures Exchange (SHFE) launched zinc futures trading yesterday, the first new product this year.

The launch was welcomed by metal-consuming industries as it paves the way for the introduction of other non-ferrous metal contracts to meet the hedging needs of Chinese manufacturers.

"It helps increase China's influence on zinc prices in global markets and enhance related industries' capability to avoid risks caused by changing world prices," said Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC) at the inauguration ceremony yesterday.

The metal for delivery in July opened at 28,600 yuan per ton yesterday, and closed at 29,220 yuan per ton, with a total of 83,930 tons traded.

China is the world's biggest producer and consumer of zinc, a metal used in galvanized sheets and lead-zinc batteries. Yet, zinc futures and options have long been traded only on the London Metals Exchange, where prices rose over 120 percent last year.

Driven by an upward spiral in spot prices for the metal and an ever-growing industrial need, the SHFE launched zinc futures contracts after a long gestation period.

"The non-ferrous metal industry has long expected zinc futures trading," said Wang Gongmin, vice-chairman of the China Non-ferrous Metals Industry Association.

"The scarcity of a mechanism to settle the price for zinc in China had forced industry participants to passively follow the international markets, rendering it incapable of properly reflecting the supply and demand for the metal," he said.

"The trading in zinc futures will generate far-reaching influence in the non-ferrous and futures markets as domestic enterprises are offered an effective platform to hedge against risks brought about by fluctuating prices."

The development of a Chinese commodity futures market will benefit hundreds of thousands of small manufacturers, as most large companies and State-owned enterprises can already cover much of their pricing risks in overseas commodities markets.

Shanghai Vice-Mayor Feng Guoqin yesterday said the launch of the trading is significant as it will promote the competitiveness of the Shanghai futures market globally and raise the position of the city as an international financial hub.

The introduction of zinc futures comes at a time when regulators are trying to widen the investment options for 33.5 billion yuan of investment funds in a stock market where the value of transactions last year equaled almost half of China's economy.

Earlier this month, the government issued new rules for futures trading, ending a ban on such trading by financial institutions, and allowing them to raise funds and offer securities for futures trading.

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