Hong Kong plans oil futures market (methinks Clowngress whined about speculators once too often.....buh-bye NYMEX).....
online.wsj.com
June 25, 2008
Hong Kong Plans Oil-Futures Market
Mercantile Exchange
Part of Bid to Widen
Role in Commodities
By JONATHAN CHENG
June 25, 2008
HONG KONG -- In an effort to tap the global surge in commodities investing and China's growing role in determining the world's prices for petroleum and other raw materials, Hong Kong plans a new exchange that will trade fuel-oil contracts.
The new Hong Kong Mercantile Exchange, set to open as soon as the first quarter of next year, will sell U.S. dollar-denominated contracts for delivery of fuel oil to mainland China, where it is often used as a power source. From there, Hong Kong hopes to expand into commodities that could range from soybeans to iron ore.
The exchange fits into the larger designs of Hong Kong officials, who are looking to bolster the Chinese special administrative region's standing as a regional finance hub. It faces a growing challenge from China's mainland, which has grown in importance as a new investor class arises and as Western companies grow more comfortable doing business there.
Hong Kong's financial secretary, John Tsang, said he was "delighted to see the creation of HKMEx," calling the new exchange "a huge opportunity for Hong Kong to develop a commodities-futures market."
To succeed, the market must draw investor and corporate interest from big commodities markets in New York and elsewhere and their growing after-hours electronic trading services. Previous efforts in Hong Kong and elsewhere stumbled owing to lack of interest.
HKMEx's boosters say the exchange will benefit from offering global investors a window into one of the world's largest, and most energy-hungry, markets. They cite pledges of participation from firms including Merrill Lynch & Co., Lehman Brothers Holdings Inc., China's Citic Group, commodities-supply-chain manager Noble Group Ltd. and Hong Kong-listed oil-storage and transport company Titan Petrochemicals Group Ltd., though the new exchange said commitments still need to be firmed up.
Booming growth and rising wealth in countries such as China and India are spurring unprecedented demand for raw materials, a trend that has pushed up grain prices and sent crude-oil contracts above $130 a barrel on the New York Mercantile Exchange. Prices have risen so much that Beijing was forced last week to ease oil subsidies to bring domestic oil prices more in line with global market prices.
As demand has risen and supplies have tightened, investor interest in commodities futures has surged. Bets outstanding on New York's oil-futures market have roughly tripled since 2004, according to the U.S. Commodity Futures Trading Commission, prompting scrutiny from lawmakers there into the role futures markets may have played in the price run-up.
Despite its growing importance in commodities markets, Asia has long lagged behind Europe and the Americas in developing futures markets, said Johann Peter Santer, managing director of global commodity fund Superfund Financial's office in Hong Kong.
"What's exciting about this is the opportunity of new markets in commodities," said Jason Boyer, executive managing director for Asia-Pacific for global financial-services firm Cantor Fitzgerald, a potential investor.
Conspicuous in its absence is stock-market operator Hong Kong Exchanges & Clearing Ltd., which said in a 2006 strategic plan that it would explore expanding into commodity futures. The exchange said Tuesday that it wasn't involved in the HKMEx and wouldn't comment on the subject.
The HKMEx is hoping to fill a gap between the Shanghai Futures Exchange, which offers fuel-oil-futures products but is closed to outside investors, and the Singapore Commodity Exchange, which has its roots as a rubber-trading exchange and is farther geographically from the Chinese mainland. "Hong Kong is ideally suited for this: It's a part of China, but it's an open economy," said Barry Cheung, a former chief executive of Titan Petrochemicals and the new exchange's chairman.
The new exchange will operate on an electronic platform during Asian daylight hours, from 10 a.m. to 5:30 p.m., eventually ramping up to 23 hours a day. Trades, which are closed to retail investors, can be settled in cash or by physical delivery in mainland China, through the shipping and storage network of Titan Petrochemicals.
Write to Jonathan Cheng at jonathan.cheng@wsj.com1
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