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Shanghai to Allow Raw Material Exchanges in Trade Zone

Shanghai will allow exchanges for iron ore, metals and energy in its free-trade zone as China pushes for more influence in raw-material pricing and developing the yuan as an international currency.

Baosteel Group Corp. and Shanghai Ganglian E-Commerce Holdings Co., owner of China’s largest steel researcher, are among eight companies with approval to set up exchanges in the zone, Shanghai Ganglian Board Secretary Hu Xiaochun said in a phone interview on April 23. Baosteel is working with the Shanghai government and its partners to set up an iron ore exchange in the zone, spokesman Alex He said April 21.

Policy makers in Asia’s biggest economy are trying to promote Shanghai as a financial hub, drawing more foreign investment. The 29 square-kilometer (11 square-mile) FTZ opened in September as a testing ground for reducing government controls over interest rates, yuan convertibility and other market instruments.

“China naturally wants to shape the commodities markets and to attract more trading to its doorstep,” said Fu Peng, strategist at Galaxy Futures Co. in Beijing. “FTZ also fits with Beijing’s push for internationalizing the yuan for trade settlement and investment.”

Zhou Jinxiang, spokesman for the free-trade zone, said yesterday he had no comment on individual companies’ activity. Shanghai is already home to China’s largest metal futures bourse and the only official spot market for gold.

Warehouse Warrants

Shanghai Ganglian aims to allow easier exchange of warehouse warrants, reducing transaction costs, Hu said. The exchange will focus on steel, iron ore and other metals at first, and may expand to energy products, she said, without giving a timetable.

“The market is big enough to accommodate various trading platforms,” said Hu. “Shanghai prices will be weather vanes for global commodity investors if the market draws huge trading volumes.”

Shanghai Ganglian and Baosteel are awaiting detailed trading guidelines from the government, the officials said. The government will supervise trading settlements, Hu said.

Shanghai’s plan will compete with China Beijing International Mining Exchange, which operates a spot bourse in the world’s biggest buyer of the steelmaking raw material. Dalian Commodity Exchange has iron ore futures, while Shanghai Clearing House said this month it may introduce yuan-denominated iron ore swaps as early as next month.

The yuan-denominated iron ore swaps will be similar to index-based contracts priced in dollars on Singapore Exchange Ltd., according to Yao Ling, an official from Shanghai Clearing House’s business innovation department.

The Chinese government has said it will bolster ties between financial markets in Shanghai and abroad. The Shanghai Gold Exchange will also introduce yuan-denominated physical gold trading in the free-trade zone to attract foreign investors, Xu Luode, the exchange’s secretary-general, said in March.

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