China, the world's largest producer and consumer of vegetable oil, will introduce rapeseed oil futures to the Zhengzhou Commodity Exchange in June to cope with price fluctuation risks.

The new futures product, which has been approved by the China Securities Regulatory Commission, will help traders hedge against price movements, sources with the exchange said Thursday.

Two separate promotions will be held Saturday in Wuhan and Nanjing, two key localities in the rapeseed business, where experts will explain futures contracts and how to trade them, and also evaluate the market prospects for rapeseed oil this year.

A workshop for rapeseed oil futures analysts is scheduled to run in Wuhan on May 20-21.

"Spot trading companies are very interested in the rapeseed oil market and keen to get into arbitrage to protect value," said Xiong Gen, general manager of the Shanghai Branch of Shanghai Liangmao Futures.

China's annual production of rapeseed oil is usually around from four to 4.5 million tons and annual consumption varies from 4.3 to 4.8 million tons.

However, since rapeseed has a relatively short shelf life, processing firms traditionally rush to buy in new rapeseed in May and June, crushing it into meal as a source of protein in livestock feed or into oil for cooking.

"If prices are high, these big purchases raise the operating risks of processing firms," said Sun Zhou, general manager of COFCO Xiangrui Oil and Grains Industries (Jingmen).

He said the uncertainties have multiplied this year as production may fall while imports may rise. "Given that the rapeseed processing industry stayed in the black the past year, a scramble for raw materials is just around the corner," Sun said.

China's rapeseed production may fall 5.5 percent to 12 million tons this year, according to the China National Grain and Oils Information Center. The country produced 4.6 million tons of rapeseed oil last year while consumption rose 5.6 percent to 4.8 million tons from a year earlier, making it the second biggest source of vegetable oil after soybean oil.

The Dalian Commodity Exchange in northeastern Liaoning Province introduced a soybean oil futures contract in 2006.

"It will be easier to track local vegetable oil prices accurately once rapeseed oil is traded," said Cai Dongcheng, an expert with the Wanda Research Center on Industry and Financial Derivatives.

Analysts say that, as a futures product, rapeseed oil -- which can also be used as a source of biodiesel -- could be affected by a broad scope of factors including the weather, supply and demand, energy prices and the price of substitute products.

Source: Xinhua