(Recasts, adds Shanghai Futures Exchange comment)
By Emily Chow and Pratima Desai
SHANGHAI/LONDON, Dec 2 (Reuters) - The Shanghai International Energy Exchange (INE) plans to launch a copper contract next year that will open the door to foreign investors wanting to hedge exposure in China, the Shanghai Futures Exchange said on Monday.
China is the top global consumer of raw materials and has some of the world’s most liquid commodities futures markets, but foreign companies have limited access to these markets.
The Shanghai Futures Exchange (ShFE), which owns INE, currently offers a copper futures contract, but it is not open to foreign participation and is subject to value-added and import taxes.
“The ShFE Copper contract in many ways is the regional benchmark in Southeast Asia. However, firms without onshore China representation were unable to hedge into the market,” said John Browning, managing director at Hong Kong-based broker BANDS Financial.
“The INE copper contract ... solves this problem. A marginal loss in hedging volume on the LME and CME might be offset by a huge increase in cross-border arbitrage.”
The London Metal Exchange and CME Group offer investors and hedgers liquid copper contracts.
“The bonded copper futures will be traded on the basis of ‘international platform, net pricing, bonded physical delivery and RMB denomination’ and directly open to overseas investors,” ShFE said, referring to the yuan-denominated contract.
The exchange gave no further detail, but a source close to the matter said the contract will be both cash and physically settled against copper stored at bonded warehouses in Shanghai and that no taxes will be levied in an effort to attract foreign investors.
Contract size and launch date have yet to be decided, the source added.
BANDS Financial, however, said that INE aims to launch the contract in the second quarter of 2020.
“The target clients are domestic trading companies, state-owned enterprises and clients located in Southeast Asia who are currently using the LME or CME to hedge,” it said in a note.
Commodities contracts open to foreign companies in China since March 2018 include crude oil, iron ore and rubber. (Reporting by Emily Chow in Shanghai and Pratima Desai in London Editing by Sriraj Kalluvila, Christina Fincher and David Goodman)