By Wang Lan (China Daily)
Updated: 2007-09-17 14:45

A broker in Shanghai Futures Exchange makes telephone contact  on August 25. The bourse is exerting an increasing influence on the global pricing of such key commodities as copper, aluminum and natural rubber.  [Newsphoto]

Shanghai Futures Exchange (SHFE), the biggest of the three commodities futures exchanges in China, is exerting an increasing influence on the global pricing of such key commodities as copper, aluminum and natural rubber.

Teng Jiawei, executive vice-president of SHFE, says: "China's increasing pricing power in the international commodities markets has helped guarantee national economic security that has a far-reaching impact on the country's long-term development."

For many physical commodities, cash-market participants often base spot and forward prices on the futures prices that are discovered in the competitive, open-auction markets of futures exchanges.

SHFE is emerging as an important pricing center for non-ferrous metals, copper in particular, second only to the London Metal Exchange (LME). Statistics show the coefficient index, an indicator reflecting the correlation between LME copper prices and those in Shanghai, has increased from less than 10 percent to 40 percent in the past several years.

Industry analysts say the weekly inventory report published by SHFE every Friday usually has a great impact on LME's copper prices. For example, the price of copper futures on LME jumped 2.2 percent on August 24 to close at US$7,430 per ton following reports that SHFE's inventory of the metal had dropped 22.5 percent, or 16,000 tons.

Because of the time difference between Shanghai and London, the pit trading on SHFE is 11 hours ahead of the trading on LME, and the closing prices on SHFE usually have a huge influence on the opening prices on LME.

What's more, "the copper prices quoted on SHFE serve as the most important barometer for producers and consumers all over the world after trading hours on the LME", says Li Jingyuan, an analyst at Haifu Futures Co.

William Adams, senior metals analyst of BaseMetals.com,says: "We feel China will remain a force to be reckoned with on the demand side," adding the fluctuations of Shanghai's inventory levels and futures positions have become a major consideration of international traders when they assess the trend of the international copper market.

A benchmark

Copper futures prices quoted on SHFE have been taken as a benchmark for major copper producers and consumers in the world. A case in point is Chile. The biggest copper producer, whose output accounts for one-third of the world total, is keeping a close eye on the inventory and price information on SHFE to direct its production activities.

Peter Sellars, CEO of Sempra Metals Ltd, a leading international metal trader, says: "Future is never exactly like the past. There are unique challenges in populous Asian economies, especially China."

Industry experts say Shanghai, as an emerging pricing center in the world, helps to secure "China's voice" in the global market to better serve the national economy.

"Emergence of a strong Chinese demand growth has raised global demand growth above expected supply growth. Trend growth rates globally are high and accelerating," says Jim Lennon, executive director of commodities research of Macquarie Bank, an Australian financial and banking services provider.

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