In an effort to break away from the western dollar-based financial system and establish control over metals crucial for the clean energy revolution, China is taking steps to dominate the trading of lithium carbonate futures. Guangzhou Futures Exchange recently launched contracts tracking the price of lithium carbonate, and within three weeks, it surpassed other global commodities exchanges in terms of open interest. This move reflects the growing importance of the electric-vehicle industry and the need for companies to hedge against price fluctuations.
China’s ambition to control these markets and serve as a pricing power is evident. With a significant number of mines and the majority of mineral products flowing into its economy, China’s establishment of its own trading hubs and benchmarks, priced in renminbi, is a potential threat to western exchanges that have traditionally dominated the market.
However, China faces obstacles in achieving global pricing power, including the use of a restricted currency and the absence of a global warehousing network for its domestic futures exchanges. The London Metal Exchange (LME), owned by Hong Kong Exchanges and Clearing, has an advantage with its external warehousing network and argues that its nickel futures contract represents a more accurate reflection of the global market. Reports have also emerged that the Shanghai Futures Exchange is considering plans for a warehousing network outside of China, indicating its ambition to compete with the LME.
Warehouses play a significant role in facilitating the functioning of an exchange, which includes acting as the “market of last resort” and supporting price discovery. To effectively challenge the LME, Chinese exchanges would need an extensive network of warehouses. Additionally, the LME’s difficulties with nickel production highlight the importance of adaptable contracts, such as the one offered by the Shanghai Futures Exchange that tracks nickel sulphate, a compound used in electric vehicle batteries.
While China may face skepticism from international traders due to the potential for government intervention and market instability, its sheer size and control over supply give it significant influence. With a massive domestic market and extensive penetration in the electric vehicle industry, China has the potential to shape these markets and carry substantial weight in the global commodities futures industry.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
