Regional exchange in China gains clout in global soy trade
By Niu Shuping and Naveen Thukral, Reuters 7 November 2008
BEIJING: In a busy port city in northeastern China, the Dalian Commodity Exchange is quietly coming of age as the reference point for the global soy trade.
Dalian has grown in less than two years from a small regional exchange to a soy futures market that rivals CME Group’s Chicago Board of Trade. It is increasingly a hedging tool for foreign-invested soy crushers and a price indicator for Asia.
On Wednesday, NYSE Euronext, the world’s biggest exchange, signed cooperation agreements with the Dalian exchange and its smaller rival, the Zhengzhou Commodity Exchange. It was the latest in a string of such tie-ups that show the rising stature of Chinese bourses in global markets.
“Our goal is to become the Asian pricing center for agricultural products,” Li Jun, vice president of the Dalian exchange, said last month.
His goal is understandable, since China imports half of the soybeans traded on the global market.
Stakes held by multinational trading companies like Wilmar, Cargill and Bunge in most Chinese crushers give the Dalian exchange new utility for hedging soy oil and meal sales and for trading the soybean spread with Chicago.
Monthly soybean trading volumes at Dalian have surged sevenfold over the past 15 months, to more than 14 million lots in October. “The liquidity is very good,” said a Singapore-based trader who, like other traders quoted for this story, asked not to be identified because he was not authorized to talk to the news media. “You can get in and out of 100,000 to 150,000 tons without too much of a problem.”
The shadow of a global slowdown has so far barely crimped the Dalian exchange’s ambitions. A new, 53-story building is being built opposite the existing hall, and will be ready next year.
China’s futures markets growth may be limited by legal controls that restrict foreign players, although restrictions on domestic financial institutions should fall away under new futures regulations.
Dalian’s trading is still dominated by individuals, with only 3 percent of active traders classed as institutional investors.
“Dalian’s price impact is still very limited, as it has kept foreign investors outside the door,” said Xiaoyue Li, the director of Asia operations for the U.S.-based grain brokerage FCStone Group in China.
Foreigners may hesitate because of the impact of swings in China’s state reserves of grains, and - beginning this year - soy oil and soybeans, news of which can leak to well-connected market players and rock the futures markets.
“It is like the stock market; people walk in and walk out,” said one trader. “That is why the volumes are high.”
But crushers, which hedge soy meal and soy oil sales in Dalian, are a new force. They now account for about 20 percent of total trades, although they are careful to stay below the radar, since Beijing can make its feelings known if prices move too quickly in the wrong direction.
“You don’t flash too much in the market,” a trader said. “You restrict yourself and stay within certain limits which we self impose, beyond what the exchange or the government does.”
In an effort to broaden its horizons, the Dalian exchange has signed 15 pacts with foreign partners, including the CME, Bursa Malaysia, Japan’s TFX and India’s NCDEX.
It is trying to establish more farm futures in which China has a big market influence, like rice and hogs.
But it has tough competition, with the Bursa Malaysia Derivatives exchange, based in Kuala Lumpur, remaining the global benchmark for palm oil, despite strong volumes in Dalian.
“The reality is that in terms of volume, Dalian refined palm oil futures has more volume, but Bursa Malaysia crude palm oil futures will continue to be the benchmark because it is based in a major producer country,” said a trader with foreign commodities brokerage in Kuala Lumpur.
There’s also limited interest in Dalian’s corn contract. Despite China’s being the world’s second largest consumer and producer, China is entirely self-sufficient and has banned exports, leaving little room for arbitrage trade.
The Zhengzhou exchange has an even tougher path ahead, as it has developed a reputation for erratic price movement.
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Regional exchange in China gains clout in global soy trade
By Niu Shuping and Naveen Thukral, Reuters
7 November 2008
BEIJING: In a busy port city in northeastern China, the Dalian Commodity Exchange is quietly coming of age as the reference point for the global soy trade.
Dalian has grown in less than two years from a small regional exchange to a soy futures market that rivals CME Group’s Chicago Board of Trade. It is increasingly a hedging tool for foreign-invested soy crushers and a price indicator for Asia.
On Wednesday, NYSE Euronext, the world’s biggest exchange, signed cooperation agreements with the Dalian exchange and its smaller rival, the Zhengzhou Commodity Exchange. It was the latest in a string of such tie-ups that show the rising stature of Chinese bourses in global markets.
“Our goal is to become the Asian pricing center for agricultural products,” Li Jun, vice president of the Dalian exchange, said last month.
His goal is understandable, since China imports half of the soybeans traded on the global market.
Stakes held by multinational trading companies like Wilmar, Cargill and Bunge in most Chinese crushers give the Dalian exchange new utility for hedging soy oil and meal sales and for trading the soybean spread with Chicago.
Monthly soybean trading volumes at Dalian have surged sevenfold over the past 15 months, to more than 14 million lots in October. “The liquidity is very good,” said a Singapore-based trader who, like other traders quoted for this story, asked not to be identified because he was not authorized to talk to the news media. “You can get in and out of 100,000 to 150,000 tons without too much of a problem.”
The shadow of a global slowdown has so far barely crimped the Dalian exchange’s ambitions. A new, 53-story building is being built opposite the existing hall, and will be ready next year.
China’s futures markets growth may be limited by legal controls that restrict foreign players, although restrictions on domestic financial institutions should fall away under new futures regulations.
Dalian’s trading is still dominated by individuals, with only 3 percent of active traders classed as institutional investors.
“Dalian’s price impact is still very limited, as it has kept foreign investors outside the door,” said Xiaoyue Li, the director of Asia operations for the U.S.-based grain brokerage FCStone Group in China.
Foreigners may hesitate because of the impact of swings in China’s state reserves of grains, and - beginning this year - soy oil and soybeans, news of which can leak to well-connected market players and rock the futures markets.
“It is like the stock market; people walk in and walk out,” said one trader. “That is why the volumes are high.”
But crushers, which hedge soy meal and soy oil sales in Dalian, are a new force. They now account for about 20 percent of total trades, although they are careful to stay below the radar, since Beijing can make its feelings known if prices move too quickly in the wrong direction.
“You don’t flash too much in the market,” a trader said. “You restrict yourself and stay within certain limits which we self impose, beyond what the exchange or the government does.”
In an effort to broaden its horizons, the Dalian exchange has signed 15 pacts with foreign partners, including the CME, Bursa Malaysia, Japan’s TFX and India’s NCDEX.
It is trying to establish more farm futures in which China has a big market influence, like rice and hogs.
But it has tough competition, with the Bursa Malaysia Derivatives exchange, based in Kuala Lumpur, remaining the global benchmark for palm oil, despite strong volumes in Dalian.
“The reality is that in terms of volume, Dalian refined palm oil futures has more volume, but Bursa Malaysia crude palm oil futures will continue to be the benchmark because it is based in a major producer country,” said a trader with foreign commodities brokerage in Kuala Lumpur.
There’s also limited interest in Dalian’s corn contract. Despite China’s being the world’s second largest consumer and producer, China is entirely self-sufficient and has banned exports, leaving little room for arbitrage trade.
The Zhengzhou exchange has an even tougher path ahead, as it has developed a reputation for erratic price movement.
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