SHANGHAI, 23 March, 2012– China’s steady economic growth will continue to fuel commodity demand, drive trading volumes, and influence the world commodity market, in particular the gold sector. Its rising personal income and continued liberalization of the domestic market, together with monetary creation and gold accumulation by major central banks around the world, are expected to support high gold prices in the long-term, said industry experts at an investment seminar held in Shanghai today by the Hong Kong Mercantile Exchange (HKMEx) and ICBC.
Despite declines in trading volumes reported last year by its commodity exchanges, China’s total commodity trading volume as a percentage of the global total remained significant at 37% in 2011, according to industry figures.
“Recent declines are a result of a range of factors including the continuing European sovereign debt crisis and new domestic measures to restore efficient price discovery. These corrections are merely a blip on the upward trajectory of growth,” said Albert Helmig, President of HKMEx. “China remains a major force in the global commodity markets, and its share of global exchange-traded futures volumes will only increase as it continues on its path of steady economic growth.”
China is also increasingly exposed to world commodity prices as it relies more on imports to meet its commodity needs. The nation consumed four million barrels of crude oil a day in 1995 which were all locally produced. Its oil consumption raised to 10 million barrels a day in 2010 of which 4.8 million barrels were imported. Similar hikes were found in iron ore and copper.
“There is a rising need for Asian-focused products as market participants in the region are finding international contracts inefficient to hedge local positions. The steady increase in our trading volumes and membership to a certain degree reflects such market need.” Helmig added.
In February, HKMEx’s daily average volume was more than 7,200 contracts, compared to around 2,500 per day in May last year when the Exchange was launched. HKMEx also added 11 new members since launch with China Xin Yongan, and major global brokerages Jefferies Bache and Newedge being the most recent additions.
Helmig’s views on China’s growing influence in the world commodity market were echoed by fellow speaker Jeffrey Nichols, Managing Director of American Precious Metals Advisors. “China’s influence is especially felt in the gold market. In fact, no discussion of gold is complete without a close examination of China’s own supply and demand fundamentals,” commented Nichols.
According to Nichols, China’s influence on the future price of gold is likely to continue, if not grow, in the next few years reflecting the country’s economic growth, rising personal incomes, episodes of worrisome inflation, continued liberalization of its domestic gold market and, importantly, continuing central bank reserve diversification.
“And there are many other countries across Asia and the Middle East that share a historical, cultural and even religious affinity to gold as a traditional monetary medium for saving and investment. All factors considered, I believe gold prices in the long term remain extremely positive,” noted Nichols.
In addition to Helmig and Nichols, today’s seminar also features Xu Jiashun, Chief Precious Metals Analyst of Yongan Futures, who also expects gold prices to continue to trend up despite being volatile.
HKMEx currently offers two US-dollar commodities contracts -- a 32 troy ounces gold futures contract and a 1,000 troy ounces silver futures contract. Going forward, the Exchange plans to capitalize on the rising demand for renminbi investment products by introducing gold and copper contracts denominated in the Chinese currency, followed by other products in both precious and base metals product suites, as well as contracts in energy, agriculture, and commodity indices.
“In addition to rolling out innovative products, we will continue to expand on our membership to further improve liquidity and enhance market access for market participants worldwide,” Helmig concluded.