Shanghai Futures Exchange Starts Silver Contracts Trade

on May 21, 2012

As of May 10 the Shanghai Futures Exchange (SHFE) started trading silver contracts, providing Chinese investors with direct access to the market. This is the second precious metals futures contract on offer by the SHFE following gold and will be aimed at proving an efficient hedging tool for China’s producers and consumers of silver.

“Since there is no authoritative price signals in China to guide production and operation and head off price fluctuation risks, China’s silver production, consumption and trading enterprises are exposed to substantial market risks making it urgent to launch silver futures trading for the purpose of price discovery and hedging,” said the China Securities Regulatory Commission (CSRC).

Even though it is the world’s largest silver consumer and the second largest producer of the precious metal, in recent years China has not been influencing silver pricing alongside the major market players from New York and London. Regulators hope that now the introduction of silver contracts on the SHFE will provide China with an opportunity to influence silver prices and create a tool to tame the volatility. Market watchers expect the SHFE contracts to also prove bullish for silver prices and make market manipulation, which gives rise to price volatility, more difficult.

!m[](/uploads/story/61/thumbs/pic1_inline.png)Within the SHFE the lot size of the silver contracts has been set at 15 kilograms and the lot prices will be allowed to fluctuate by five per cent a day. The margin requirement was set at seven per cent and prices will be quoted in Chinese Yuan (RMB). Initial prices for the silver contracts are estimated to range from RMB 6,400 to 6,600 (approximately $1,014 to $1,046). The minimum amount the prices will be allowed to fluctuate was set at 1 Yuan (16 US cents). According to Shanghai Metals Market (SMM), SHFE silver prices will take cues from and be pegged to London Spot prices in the beginning, but as spot demand in China picks up for the metal, domestic cues will also influence prices.

Analysts said that as Chinese investors get a direct way to trade silver futures they will impact on silver’s overall price because the market is becoming bigger and more liquid with the advent of these futures contracts. In fact, after China started Future trading on the Shanghai Futures Exchange the white metal received a boost. Silver prices rallied sharply on Thursday and provided a great boost for Chinese silver companies. The Global X Silver Miners ETF (SIL) jumped 2.62 per cent — nearly matching the iShares Silver Trust (SLV) gain of 3.30 per cent. Silver’s rally will look to continue on the emergence of Chinese Silver futures.

Optimistic silver investors are excited for the opening of the Shanghai silver exchange after heated coverage on manipulation of silver by keystone western banks in recent years. The mainstream press called the May 10 opening of the exchange a “diversification” in silver futures as the Shanghai Futures Exchange will commence trading silver contracts, thus providing Chinese investors with effective and low-cost risk control that will allow them to improve competitiveness, management, and promote steady development of the industry.


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