Driven by an upward spiral in spot prices for zinc and an ever-growing industrial need for the metal, the Shanghai Futures Exchange (SFE) is set to launch a zinc futures contract to help both consumers and producers hedge against risk.

Among the most active underlying commodities on the world futures market, non-ferrous metals have equally important potential as investment instruments.

Rising prices are forcing metal-consuming industries around the world to minimize waste through restructuring the management and production of the resource.

Zinc is expected to be the first new product launched this year on the SFE, joining copper and aluminum as commodities with domestically traded futures contracts.

Because China is a major producer of galvanized sheets and lead-zinc batteries, it is also a major consumer of zinc, so futures trading can offer an effective tool to reduce risks caused by changing world prices.

Despite increasing world zinc production, Chinese consumers still face supply challenges, with even stronger demand likely in the years to come. Zinc prices are likely to continue to rise in the near future and the possibility of hitting record highs this year cannot be ruled out, experts said.

The average price for zinc during the first 11 months in 2006 rose 95.81 percent from a year earlier to 27,306 yuan per ton. Last year zinc prices on the London Metal Exchange averaged $3,172 per ton, surging 129.6 percent from 2005.

"Proposed trading in zinc futures contracts will help establish Shanghai's own system of setting a price for zinc, which would better reflect the supply and demand in the domestic marketplace and help free Chinese companies from prices dictated by international traders," said Zhou Jie, a senior analyst with China International Futures (Shanghai) Co Ltd.

In addition, the underlying instruments of zinc futures contracts would set a unified standard for the purity of the metal, which will help improve the market and ensure its healthy growth, Zhou said.

As the world's most important manufacturing hub and raw materials producer, Shanghai-centered Yangtze River Delta is under strong pressure by its industries to diversify futures products and expand their trading scale.

source: China Daily