Asphalt futures contract set for launch

Analysts welcome move by Shanghai exchange as step toward crude oil contracts later this year

The Shanghai Futures Exchange is to introduce an asphalt futures contract soon, with trade likely to begin before June, the Shanghai Securities Journal reported on Wednesday.

It will be the world's first asphalt futures product.

The exchange has been carrying out research and preparing to introduce a list of energy commodity futures, including crude oil, product oil, liquid petroleum gas, and asphalt. Earlier media reports said it plans to introduce a crude oil contract later this year.

The Shanghai Securities Journal quoted an insider from the exchange as saying preparations have been completed for introducing the asphalt futures contract, and once the China Securities Regulatory Commission approved the application, it can begin trading in Shanghai.

As an industrial raw material, asphalt plays a major role in highway construction.

"There is a basic balance between supply and demand in the domestic market, which means it is relatively independent on the overseas market and suitable to become a futures product," the insider said.

Li Zhoulei, an analyst with Shanghai CIFCO Futures, said the move can be seen as a step toward establishing China's crude oil futures contract later this year, as asphalt is an important downstream product of oil.

The current spot price for asphalt is about 5,000 yuan ($806) a ton.

The exchange will limit daily moves in asphalt futures to 3 percent of the previous closing price. Investors will have to pay at least 4 percent of the contracts as a margin deposit.

In an attempt to gain greater influence on international commodity prices, Shanghai is seeking to become a global commodities trading center in five to 10 years, Ai Baojun, the city's vice-mayor, said in November.

The establishment of the crude oil futures contract on the Shanghai Futures Exchange will help the country deal with fluctuating oil prices and increase its influence over global prices.

About 60 percent of China's oil consumption comes from imports, and the country has become the world's second-largest oil importer.

China has been moving to introduce more energy commodity futures to the market, in an attempt to satisfy consumption demand and avoid risks brought by price fluctuations.

The Dalian Commodity Exchange will soon introduce the world's first coking coal futures contract, which it hopes will help steel makers, coal and coke producers to hedge the key steelmaking raw material.

Analysts expect the contract to fare better than the metallurgical coke futures the exchange introduced last year, because deliveries of coking coal are much swifter.

In the first 10 months of 2012, China's futures market saw 1.15 billion transactions, a 32.5 percent year-on-year increase, with turnover of 135 trillion yuan, an 18.4 percent year-on-year rise.