The Emergence of 'Shanghai Prices' in the Global Industrial Value Chain
In the global spot market for commodities, China possesses the longest and most complete industrial chain and has maintained its position as the world's largest trader of goods for seven consecutive years, with "Chinese demand" carrying significant weight. However, for a long time, due to trade habits formed by historical reasons, China could only passively accept pricing on certain commodities, which was not commensurate with its status as a major trader and consumer. After more than a decade of effort, this situation has been significantly improved. Now, the "Shanghai Price" is making its presence felt in the global industry chain, gradually exerting a growing influence.
Expanding Global Reach
An efficient and transparent futures market allows market participants to hedge risks, stabilize operations, and investments. In today's world, international trade in important commodities such as grain, crude oil, and non-ferrous metals mainly adopts futures pricing, and companies around the world widely use futures tools for hedging.
In the Americas, the energy and agricultural futures prices of the New York Mercantile Exchange and the Chicago Board of Trade are the global trade pricing benchmarks; in Europe, the London Metal Exchange is the world's largest copper futures market; and in Asia, China's futures exchanges are becoming an important part of the global commodity trade pricing system. In 2023, the Shanghai Futures Exchange, Zhengzhou Commodity Exchange, and Dalian Commodity Exchange were among the top ten global exchanges in futures and options trading volume. With the development of China's economy and the improvement of the futures market, China's influence in the global commodity pricing system is continuously strengthening.
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A host of "Shanghai Prices" are gradually expanding their international influence. As the world's third-largest crude oil futures market, the Shanghai crude oil futures have preliminarily established a price benchmark for the Asia-Pacific region; the "Shanghai Rubber" trading volume has far exceeded that of foreign counterparts, and the global rubber pricing center is gradually taking shape in Shanghai, with the volume of cross-border trade in physical goods linked to the futures price of rubber No. 20 accounting for nearly 40% of China's natural rubber imports; "Shanghai Copper" has become the domestic industry chain trading pricing benchmark, widely used by the industry, and international copper and Shanghai copper coordinate the domestic and international markets with "dual contracts"; the Shanghai pulp futures settlement price has been authorized to the Norwegian Pulp and Paper Exchange, marking the first time China has exported its futures prices to a foreign exchange...
Data shows that in the first ten months of this year, the number of industrial customers participating in the trading of listed varieties on the Shanghai Futures Exchange increased by about 17% year-on-year, and the proportion of important varieties held by industrial customers has basically reached the same level as first-class international exchanges. The trading volume of the Shanghai Futures Exchange (including the Shanghai International Energy Exchange) was 1.978 billion hands, a year-on-year increase of 8.8%, with a transaction value of 192.88 trillion yuan, a year-on-year increase of 26.7%, accounting for 54.4% of the national commodity futures market. Among them, the number of foreign customers increased by about 20% year-on-year, and the number of qualified foreign investor customers increased by nearly 60% year-on-year. The scale of international trade priced by the "Shanghai Price" is steadily increasing, such as some important steel companies referring to the Shanghai Futures Exchange price when exporting stainless steel; more oil companies and refineries refer to the Shanghai crude oil futures price when signing import and domestic crude oil trade contracts. The Shanghai Futures Exchange has accelerated the construction of a world-class exchange, better serving and leading the development of the real economy, and has achieved significant results.
Empowering Stable Operations of the Real Economy
Since the Red Sea crisis, the combination of tight shipping capacity and increased foreign trade demand has led to a significant increase in international shipping prices. However, backed by the Shanghai International Financial Center, some shipping and logistics companies are not panicked. Because they have a powerful risk management tool in their hands - the container index (Europe) futures. To hedge against the losses caused by the continuous rise in freight rates, logistics companies can buy container index (Europe) futures contracts on the Shanghai Futures Exchange for hedging. Since its listing a year ago, the trading activity of container index futures has continued to lead similar foreign products and won the "Best Innovation Award of the Year" at the 2024 Asian Energy Risk Awards.
This is a representative variety of the booming development of the Shanghai futures market. At present, China's futures market is facing an important period of development opportunities. On September 30th, a blueprint was drawn for the high-quality development of the futures market, with clear goals and clear paths. The release of policy dividends will bring the futures industry into a new stage of development.
On the one hand, in terms of trade, with the strong promotion of the "Belt and Road" initiative, China's futures market attracts more domestic and foreign investors to participate, and its global influence is increasing day by day. On the other hand, against the backdrop of increasing external environmental uncertainty, the rigid risk management needs of the real industry have increased, and the demand for participating in the futures market for hedging has significantly increased.
It is against this background that the Shanghai Futures Exchange has planned and implemented development measures in depth, combining the implementation plan for "accelerating the construction of a world-class exchange" with the spirit of the 20th National Congress of the Communist Party of China and the second and third plenary sessions of the 20th Central Committee, as well as policy deployments such as the new "nine articles" of the capital market, and promoting them in a unified manner.
In 2024, the Shanghai Futures Exchange successfully launched options products such as lead, nickel, tin, and alumina, providing the non-ferrous metal industry with a complete set of risk-avoiding tools. "As the most important basic materials for new-generation electronic information, high-end manufacturing, and other strategic emerging industries, the non-ferrous metal industry has achieved good results and firmly established its position as the world's largest importer, producer, and consumer." Chen Xuesen, vice chairman of the China Nonferrous Metals Industry Association, said that the futures market has played an important role in the high-quality development process of China's non-ferrous metal industry. According to relevant statistics, the top 50 backbone enterprises in China's non-ferrous metal industry have all participated in the futures and derivatives markets, and basically all of the more than 130 listed non-ferrous metal companies in China have used futures and derivative tools for risk aversion. "Whether it was the 2020 London nickel incident or this year's alumina price fluctuations, the Shanghai Futures Exchange has played a prominent role in strong risk control and provided strong support for the stable operation of the industry." Chen Xuesen said.
During the investigation, reporters learned that more and more non-ferrous metal production enterprises are using the futures market to lock in prices and hedge risks, while also using the futures delivery function to assist in spot sales: that is, by applying to become a registered brand of the Shanghai Futures Exchange, in the traditional off-season for spot sales, the products produced are registered as futures warehouse receipts, and the futures market is used to choose the right price for selling and delivery, in order to expand sales channels and realize capital recovery.
The petroleum and chemical industry's feelings are roughly the same. So far, there are 18 futures varieties listed and traded in 16 chemical industries, including 5 on the Shanghai Futures Exchange, 7 on the Zhengzhou Commodity Exchange, and 6 on the Dalian Commodity Exchange, with 15 products included in options trading. "The futures industry has allowed physical enterprises in the petrochemical industry to enter a period of development opportunities." Li Bin, vice chairman of the China Petroleum and Chemical Industry Federation, said that in the first three quarters, the industrial added value of China's 16 chemical industries increased by 6.8% year-on-year, but the benefits declined. However, the futures trading volume of the petroleum and chemical industry maintained rapid growth. Li Bin introduced. In 2021, China's chemical industry's production capacity ranked first in the world. In 2022, China surpassed the United States to become the world's largest refining country. By the end of 2023, China's petroleum and chemical industry product output accounted for about 40% of the global total. "The core functions of the futures market, such as price discovery, hedging, and resource allocation, continue to play a role." Li Bin said that the next step is for the Shanghai Futures Exchange to improve the hedging tools of the industrial chain, deepen the connection between domestic and foreign markets, expand the influence of futures prices, and better meet the pricing and hedging needs of related industries worldwide.
Making Tools Richer and Easier to Use
China is the world's largest importer of pulp. At present, in China's pulp import trade, many enterprises participate in the pulp futures price of the Shanghai Futures Exchange. Zhao Wei, chairman of the China Paper Association, described the changes in pulp imports: "Now the quotation is basically based on the futures price of the Shanghai Futures Exchange, and the premium or discount can be made. What everyone in the international community talks about is the futures trading of the Shanghai Futures Exchange. It should be said that it has played a great role in discovering prices and guiding production."
Not only is pulp futures, but the black metal futures such as rebar, hot-rolled coil, and stainless steel on the Shanghai Futures Exchange have further optimized the steel price formation mechanism, helping the healthy and orderly development of China's steel industry and enhancing the international influence of China's steel prices; the futures of crude oil, fuel oil, and petroleum asphalt are accelerating the exploration of energy futures products, enhancing the market influence of China's petroleum products...
From the perspective of the Shanghai Futures Exchange, the "price influence" of futures varieties can be evaluated from two dimensions: one is the wide participation of users. The subjects participating in price formation should be diversified and international, reflecting global supply and demand information; the subjects using the price as the global trade benchmark price should be broad, covering the entire industry chain upstream and downstream. The second is scale leadership. The futures trading scale that forms the price is leading; the scale of using the price for spot trade is leading.
"Of course, we should also see that there is still a big gap from a world-class exchange. The next step is to further increase the level of opening up, introduce global traders to participate widely, and promote global enterprises to use and refer to the Shanghai Futures Exchange price more in trade scenarios." The person in charge of the Shanghai Futures Exchange said that it will take high-level opening up as a starting point to promote global enterprises to use and refer to the Shanghai Futures Exchange price more, and create a "Shanghai Price" that leads the development of the global entity. It is reported that the Shanghai Futures Exchange is actively docking new quality productive forces and increasing the development of related varieties.
The futures market is an important part of China's financial system, playing an active role in maintaining the safety of industrial and supply chains, economic and financial security, and social expectations. The growth of the "Shanghai Price" is a microcosm of the "China Price" enhancing international influence. In the future, China's futures market will focus on strategic goals such as increasing the influence of commodity prices and accelerating the construction of a world-class exchange, improving a first-class product system that is compatible with the modern industrial system; creating a first-class system and mechanism that combines international standards with Chinese characteristics; building a regulatory dike, consolidating a first-class safety level that does not occur systemic risks; looking at linking the world, building a first-class open platform with significant influence and competitiveness.