Speakers from the Shanghai Futures Exchange (SHFE) and the Indonesian Commodity and Derivatives Exchange (ICDX) both outlined upcoming changes to their respective tin contracts in presentations at ITRI’s 2017 Asia Tin Week in Kunming last week.
Dr. Zhang Zhiyong, Head of the non-ferrous metals department at SHFE, outlined how daily turnover for the SHFE tin futures contract has grown rapidly since its introduction in March 2015, along with the quantity of tin stock held in exchange warehouses. Recognised problems include that of the 12 monthly tin contracts available, only the January, May and September contracts are being actively used by market participants, making it difficult for industrial participants to hedge effectively. In addition, speculator activity, with only 15% of turnover attributed to industrial clients, compared with 60-70% for other metal contracts.
SHFE is attempting to address these issues by taking actions including lowering transaction fees by two-thirds for the non-active contracts and developing over-the-counter trading (OTC). SHFE is currently a closed market, with foreign companies required to establish a domestic presence in order to access the exchange. However, it is possible that SHFE may look to become more open in the future, with a planned oil futures contract potentially used as a test case for more internationally accessible contracts which could later be rolled out to the metal markets.
Stella Lukman, Vice President and Head of Business Development at ICDX, outlined developments in plans to introduce a futures contract for tin based on the existing TINPB300 physical contract. The exchange plans to set up bonded warehousing, with the first warehouse to be located in Pankalpinang on the island of Bangka-Belitung. Refined tin in these warehouses will already be cleared for export from Indonesia which should alleviate concerns about export disruptions created for example by unexpected new Indonesian trade regulations.
ITRI View: Alongside the developments outlined by SHFE and ICDX, the London Metal Exchange has recently announced sharps cuts to short- and medium-dated carry fees from October 1st in an effort to revitalise volumes. We think that all efforts by exchanges to expand their tin offerings, reduce fees and boost liquidity of their tin contracts can only be positive for the industry in the long-run although it remains to be seen whether current proposals to address problems specific to each exchange will be sufficient to reach these goals.