1.
Development of China's Commodity Futures Market
Since 2010, the Chinese futures market had fast
expanded with the launch of financial futures and Exchange-traded options. The
derivatives market has entered a stage of comprehensive development from
commodity futures to financial futures, from futures to options, from exchange-listed
to OTC, and from domestic-investors-only to liberalized foreign investor
trading.
Currently, China’s domestically listed
futures and options cover 7 categories of finance, industrial metals, precious
metals, chemicals, energy, black series and agricultural products, with a total
of 91 varieties, including 64 commodity futures and 20 commodity futures
options.
Figure
1 Commodity Futures and Options in China
Source: Galaxy Futures
2.
Commodity Futures Market
2.1
Market expansion
In terms of time, China's commodity futures
market has continued to expand steadily, and trading volume, open interest and
trading value have all shown a year-on-year growth trend for recent years. The
transaction value in the first nine months of 2021 is nearly 346 trillion yuan,
exceeding the level of the entire year of 2020.
Figure
2 Commodity futures and options market liquidity
Source: China Futures Association, Galaxy
Futures
Figure
3 Annual turnover of commodity futures and options markets
Source: China Futures Association, Galaxy
Futures
Before 2010, the commodity futures market
was still in the stage of early development, and market speculation sentiment was
relatively high. The ratio of overall market volume to open interest reached
2.8 at the highest point. After entering 2010, the degree of market regulation
has improved. In recent years, the ratio of trading volume to open interest has
gradually stabilized at around 1.
Figure
4 Commodity futures market speculation
Source: China Futures Association, Galaxy
Futures
2.2
Performance of different products
This year, in the context of "carbon
neutral" campaign, the commodity futures market has performed very well. In
the past year, 37 of the 42 products tracked have received positive returns. Among
them, the return of thermal coal reached 262%, including the price increase of
162% and the roll yield of 90%. In addition, the yields of ferrosilicon, coking
coal, and coke have also exceeded 100%.
Figure
5 Commodity futures yield in the past year
Source: Wind, Galaxy Futures (2021/10/15)
2.2
Products Liquidity
China's commodity futures market is not
only rich in products, but also has sufficient overall liquidity. Based on the
data after the market close of 2021/10/15, there are 11 products with a holding
amount of more than 50 billion for market value. They are CU-Shanghai copper, RB-rebar,
Au-gold, M-soybean meal, Y-soybean oil, CF-cotton, I-iron ore, TA-PTA, AL-Shanghai
aluminum, P-palm oil and MA-methanol.
Figure
6 Commodity futures market value scale
Source: Wind, Galaxy Futures (2021/10/15)
Some products of precious metals,
industrial metals, and energy have the same counterparts in overseas markets,
and there is a strong price correlation between domestic and foreign market products.
Some varieties of precious metals, industrial metals, and energy have the same
counterparts in overseas markets, and there is a strong correlation between
domestic and foreign market varieties. If the exchange rate factor is not taken
into consideration, the correlation coefficient between Shanghai gold and COMEX
gold is 0.75, and the correlation coefficient between SC crude oil and Brent
crude oil is 0.71.
Figure
7 Gold prices in domestic and foreign markets
Source: Wind, Galaxy Futures (2021/10/15)
Figure
8 Crude oil prices in domestic and foreign markets
Source: Wind, Galaxy Futures (2021/10/15)
For agricultural products and chemicals,
there are more liquid products in the Chinese market, and there are many products
with excellent liquidity. According to the trading volume data calculated by
the American Futures Industry Association (FIA), Chinese products dominated the
top 10 global agricultural futures, and five products are also listed in the
energy category.
Figure
9 2020 Global agricultural futures contract trading volume ranking
|
Rank |
Products |
Exchange |
|
1 |
Soybean Meal |
DCE |
|
2 |
RBD Palm Olein |
DCE |
|
3 |
Corn |
DCE |
|
4 |
Soybean Oil |
DCE |
|
5 |
Rapeseed Meal |
ZCE |
|
6 |
Egg |
DCE |
|
7 |
White Sugar |
ZCE |
|
8 |
Cotton No.1 |
ZCE |
|
9 |
Rapeseed Oil |
ZCE |
|
10 |
Natural Rubber |
SHFE |
Source: FIA, Galaxy Futures
Figure
10 2020 Global energy futures contract trading volume ranking
|
Rank |
Products |
Exchange |
|
1 |
Brent Crude Oil |
Moscow Exchange |
|
2 |
Fuel Oil |
SHFE |
|
3 |
WTI |
Nymex |
|
4 |
Brent Crude Oil |
ICE |
|
5 |
Bitumen |
SHFE |
|
6 |
Natural Gas |
Nymex |
|
7 |
Diesel Fuel |
ICE |
|
8 |
Thermal Coal |
ZCE |
|
9 |
Coking Coal |
DCE |
|
10 |
WTI |
ICE |
Source: FIA, Galaxy Futures
2.2
Product roll features
The rollover rules of Chinese futures
products are different from those of overseas products. For a long period of
time, the rollover rule of 1,5,9(Jan,May,Sep) contracts has been formed in
China. This pattern is also the most common main contract switching method
among domestic futures products, and it is more common in agricultural
products, chemicals and black series. The main contracts for the two steel
products of rebar and hot-rolled coil are generally 1,5,10. The precious metal
gold and silver futures products in June and December are generally the main
contracts, and the rotation frequency of the main contracts is the lowest among
domestic products. The non-ferrous metals such as Shanghai Aluminum, Shanghai
Copper, and Shanghai Zinc have formed a monthly rollover pattern. In addition,
Crude Oil and Shanghai Nickel have gradually changed to monthly rollover from
the previous 1, 5, and 9 pattern.
Figure
11 The rollover rule of Chinese commodity products
|
Products |
Listing Contract |
Historical active
contract |
|
Silver |
1,2,3,4,5,6,7,8,9,10,11,12 |
2,6,12 |
|
Aluminum |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,2,3,4,5,6,7,8,9,10,11,12 |
|
Apple |
1,3,5,10,11,12 |
1,5,10 |
|
Gold |
Contracts for the last three consecutive months and even-month contracts
within the last 13 months |
6,12 |
|
Bitumen |
Within 24 months, the nearest 1 to 6 months are consecutive monthly contracts, and after 6 months are quarterly contracts |
1,6,9,12 |
|
Corn |
1,3,5,7,9,11 |
1,5,9 |
|
Cotton No.1 |
1,3,5,7,9,11 |
1,5,9 |
|
Copper (BC) |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,2,3,4,5,6,7,8,9,10,11,12 |
|
Glass |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,6,9 |
|
Fuel Oil |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,3,4,5,9,10,11,12 |
|
Hot Rolled Coils |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,10 |
|
Iron Ore |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
Coke |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
Egg |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,6,7,9 |
|
Coking Coal |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
LLDPE (Linear Low Density Polyethylene) |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
Soybean Meal |
1,3,5,7,8,9,11,12 |
1,5,9 |
|
Methanol |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,6,9 |
|
Nickel |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,2,3,4,5,6,7,8,9,10,11,12 |
|
Rapeseed Oil |
1,3,5,7,9,11 |
1,5,9 |
|
RBD Palm Olein |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
PP (Polypropylene) |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
Steel Rebar |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,10 |
|
Rapeseed Meal |
1,3,5,7,8,9,11 |
1,5,9 |
|
Natural Rubber |
1,3,4,5,6,7,8,9,10,11 |
1,5,9 |
|
LSFO (LU) |
The most recent 1 to 12
months are consecutive months and the following eight quarter months |
1,2,3,4,5,6,7,8,9,10,11,12 |
|
White Sugar |
1,3,5,7,9,11 |
1,5,9 |
|
PTA |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
PVC |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9 |
|
Soybean Oil |
1,3,5,7,8,9,11,12 |
1,5,9 |
|
Thermal Coal |
1,2,3,4,5,6,7,8,9,10,11,12 |
1,5,9,11 |
Source: Wind, Galaxy Futures
3.
Commodity options products
Compared with the commodity futures market,
China's commodity options market started late. On March 31, 2017, the first
commodity option-soybean meal option was listed on the Dalian Commodity
Exchange. At present, there are a total of 20 commodity futures options. Compared
with the futures market, the options market is currently slightly less liquid,
with a total turnover of 24 billion yuan during September 2021, of which iron
ore options with the largest turnover amounted to 3.927 billion yuan.
Figure
12 Commodity options turnover (September 2021)
Source: FIA, Galaxy Futures
4. The
process of opening up the commodity futures market
In the context of the continuous opening of
the domestic capital market, the China futures market had moved from pilot
projects on a few products to full opening up.
On March 26, 2018, crude oil futures were
officially listed for trading at the Shanghai International Energy Exchange
Center. This is China's first futures product that allows foreign investors to
directly participate.
Subsequently on 2018/5/4, 2018/9/21,
2019/8/12, 2020/6/22, 2020/10/23, 2020/12/22, successively launched iron ore
futures, PTA futures, TSR 20 Futures, LSFO futures, Copper (BC) futures, and RBD
Palm Olein futures will fully involve foreign traders, and fully introduce the
participation of overseas traders.
At present, the China Securities Regulatory
Commission announced that qualified foreign investors can participate in
financial derivatives trading. The newly opened three categories of commodity
futures, commodity options, and stock index options have been implemented since
November 1, 2021. This move further liberalizes the investment scope of foreign
investors.
In general, the Chinese commodity futures
market currently:
1)
Rich products. There are 64 types of
futures and 20 types of commodity options. All kinds of industrial chains are
covered, especially many black series products, energy-chemical products and
agricultural products are unique in the world.
2)
Sufficient liquidity. It not only covers
comprehensively in the industrial chain, but also has sufficient liquidity. The
holding amount of 11 products exceeds 50 billion RMB. Agricultural product
futures have taken the top 10 in global trading volume ranking, and 5 energy products
have also ranked among the top 10 in global energy products. And the market
size is increasing year by year, and the transaction amount in the first 9
months of year 2021 has exceeded that of the whole year of year 2020.
3)
Market standardization. Before 2010,
there was a period of chaotic development in the futures market. After
rectification, there are currently 5 commodity futures exchanges in China
(Shanghai Futures Exchange, Dalian Commodity Exchange, Zhengzhou Commodity
Exchange, Shanghai International Energy Exchange Center, Guangzhou Futures
Exchange). The over-speculative nature of products in the market has also been
significantly reduced, and the ratio of overall trading volume to open interest
is currently around 1.
4)
Investment Opportunities. The
performance of bulk commodities for year 2021 is very strong, and the annual
return rate of multiple products exceeds 100%. And under the theme of
"carbon neutral" campaign, China's industrial production will undergo
profound changes, and there are still many trading opportunities for
commodities.
Comments
Post a Comment