SHFE trading expansion focuses on nickel

In a series of January announcements, the Shanghai Futures Exchange (SHFE) and the China Securities Regulatory Commission (CSRC) that plays a role in regulating it have indicated domestic and overseas metals traders soon will have more hedging and trading choices in the People’s Republic of China.

A January posting to the CSRC website (in Chinese) refers to “interim measures” to its CSRC Order No. 116 that entail adding 14 “new futures and options products as domestic-specific commodities.”

The agency then lists nickel futures and nickel options on the SHFE; paraxylene futures, bottled fiber futures, staple fiber futures, purified terephthalic acid options, paraxylene options, bottled fiber options and staple fiber options on the Zhengzhou Commodity Exchange; lithium carbonate futures and lithium carbonate options on the Guangzhou Futures Exchange; and TSR20 rubber options, low-sulfur fuel oil options and international copper options on the Shanghai International Energy Exchange (INE).

The CSRC says it “will urge relevant futures exchanges to make all necessary preparations and smoothly and orderly implement the introduction of overseas traders to participate in the trading of the aforementioned products.”

An SHFE announcement posted three days later says in part, “Nickel futures will be the first duty-paid nonferrous metal futures product on SHFE that is directly opened to global investors, and INE will have full coverage of options on corresponding mature futures products with the listing of three new options.”

For metals traders, the London Metal Exchange (LME) long has been the market leader in nickel trading and warehousing. In March 2022, extreme volatility in LME nickel pricing caused concern in the global metals community, including in China.

Although the LME itself did not disclose parties involved in taking positions during the price spike, reporting by media outlets indicated stainless steel producer Tsingshan Holding Group Co., based in Wenzhou City, China, had taken potentially disastrous short positions in the face of a rapidly rising nickel price.

Another agency that has chimed in on metals trading is the Shanghai Municipal Financial Regulatory Bureau (SMFRB), according to John Browning of Hong Kong-based BANDS Financial Ltd.

In a late January e-mail to current and potential customers, Browning quotes from a recent “action plan” released by that agency that includes “strategic pillars” designed to “strengthen futures-spot [market] linkage and enhance the capacity of nonferrous metals commodities.”

Among those pillars, according to Bands, is “internationalization,” tactics of which can include strengthening the influence of the “Shanghai price,” in part by expanding the high-level institutional opening of the Shanghai nonferrous metal futures market to “gradually include the varieties of nonferrous metal product futures and options that meet the conditions into the range of varieties open to the outside world,” according to Browning.

Writes Browning, “I would say there are serious concerns for the exchange managers at Comex, LME, the Intercontinental Exchange (ICE) and the Singapore Exchange (SGX).”

He continues, “Primarily, this statement is not about extending trading access; it signals an intent to extend infrastructure. Currency, clearing and warehousing are where Western markets still enjoy structural dominance and it is where Shanghai clearly intends to offer an alternative head-on. The goal, the ‘Shanghai price’ is not just volume driven—it is that any other price in the Asia region is irrelevant. The other Western exchanges become financial overlays [and] the intention is that the ‘real’ Asia marketplace is in Shanghai.”