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Coaltrans China - New profit model for foreign participants

Foreign investors are able to trade directly in China’s coal future markets in a way that is similar to China’s largest online retail portal Tao Bao (taobao.com).

Foreign investors are able to trade directly in China’s coal future markets in a way that is similar to China’s largest online retail portal Tao Bao (taobao.com).

 

Speaking at the 12th Coaltrans China Conference in Shanghai, Wei Tong of Zhengzhou Commodities Market (ZCM) introduced a new profit model whereby trading price is determined by the futures price while quantities are negotiated offline by the parties.

 

"All that a foreign company needs to do is to register for a Chinese entity and use it to trade through a risk management company," said Wei.

 

This was made possible when the China Securities Regulatory Commission (CSRC) approved the establishment of risk management subsidiary company last year. The model was adopted in ZCM, which launched the thermal coal futures contracts in September 2013. 

 

In an example of a real case cited by Wei, Xin Hai Electricity entered into an agreement with the risk management firm Jin Yin, which had placed purchase order in the futures market at a price that Xin Hai agreed. Meanwhile, the well-known coal producer Yi Tai, who was worried about an imminent price fall, sold its contract to Jin Yin in the futures market. Later Yi Tai signed a contract to exchange for physical products with Jin Yin and both parties closed their position in the futures market. Yi Tai subsequently delivered the commodity coal to Xin Hai directly.

 

"This model bears a resemblance to the online trading portal taobao.com." said Wei, "Financial online network is both a challenge and an opportunity for all of us."

 

Yuebao, signifying "Leftover Treasury" in mandarin, which was launched by Alibaba Group in June last year through its Paypal-like subsidiary Alipay, has raised Rmb1.79 billion in just six months and made a sales turnover of Rmb191 million in one single day on the National Day Holiday, according to Wei.

 

In March 2014, Yanzhou Coal Mining Company and China Shenhua Energy Company announced the launch of hedging business in 2014, with maximum marginal scale not exceeding Rmb500 million and Rmb300 million respectively. 

 

Since the launch of thermal coal contracts in September, ZCM recorded a total trading volume of 12.13 million contracts (2.4 billion tons) by the end of March this year. Its average daily trading volume stood at 100,000 contracts (200 million tons) and daily open interest at 60,000 contracts (12.76 million tons of coal).

                                               

 

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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