China’s aluminium, zinc options see slow start on Shanghai debut

Credit: Shanghai Futures Exchange

China, the world’s biggest consumer of aluminium and zinc, launched options contracts for both on the Shanghai Futures Exchange on Monday, drawing lukewarm interest on the first day of trade.

The roll out follows the launch of copper options almost two years ago and comes after a recent rally in the base complex driven by a strong recovery in Chinese demand and concerns of supply disruption overseas.

Shanghai base metals fell across the board on Monday, however.

Holders of options have the right to buy or sell a futures position at a specified price, which can help them manage their price exposure.

Only 2,665 aluminium options contracts and 4,793 zinc options contracts changed hands by the afternoon close

Units of Aluminum Corp of China Ltd (Chalco), trader Trafigura and COFCO were among the first to trade the new options contracts, the exchange said.

Only 2,665 aluminium options contracts and 4,793 zinc options contracts changed hands by the afternoon close.

“Trading is not very liquid,” said a Shanghai-based trader, adding that the contracts should eventually see higher volumes.

“While the domestic market is gradually warming up to options trading, there still aren’t many traders with mature experience using options.”

The trader expects industry players to sell put options – which offer protection against a slide in prices – as aluminium and zinc prices may still rise ahead of peak consumption season from September.

While debut trading activity was less active than expected, Minmetals and Jingyi Futures zinc analyst Hou Yapeng said the contracts provided options for domestic entities that lack resources and access to trade overseas options contracts.

The London Metal Exchange already trades aluminium and zinc options.

The Shanghai exchange currently has options contracts for gold, rubber and copper, but traders say options trading in China is not as developed as futures.

Market makers for aluminium and zinc options include China’s biggest brokerage CITIC Securities and a unit of state-run China Minmetals Corp.

(By Emily Chow; Editing by Jason Neely and Amy Caren Daniel)

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