Shanghai Futures Exchange launches new rubber contracts, trading policies to mirror crude oil futures

Jun 13, 2018 (China Knowledge) – China’s Shanghai Futures Exchange (ShFE) has announced that the China Securities Regulatory Commission (CSRC) had approved the launch of technically specified rubber (TSR) 20 rubber futures contract. The TSR 20 will replicate crude-oil futures related trading policies and allow foreign investors to trade.

TSR 20 is one of the most important in the global natural rubber industry today. The global production of natural rubber reached over 12 million tons, of which 70% are used for tire manufacturing. 80% of the tire manufacturers use TSR 20 rubber.

As the world’s largest tire manufacturer, China is also the largest importer and consumer of TSR 20 rubber. The main source countries of imports are Southeast Asian countries as part of the “Belt and Road initiative” such as Thailand, Indonesia and Malaysia.

According to statistics, China imported about 3.27 million tons of TSR 20 rubber in 2016, and three Southeast Asia countries-Thailand, Indonesia and Malaysia accounts for 82 % of China’s TSR 20 rubber imports.

The development of such futures contract is an important initiative by the ShFE to support “the Belt and Road initiative” and help foster a conducive environment to build a pricing system for the global natural rubber market, China’s ShFE said in a press release. Coupled with the increasing number of China’s natural rubber industry chain enterprises expanding overseas, the price exposure and operating risk faced by domestic enterprises are rising in proportion to their overseas rubber supplies.

During the period of 2010-2017, price of TSR 20 rubber hit its peak of RMB 38,205 per ton, while it sank to the lowest of RMB 6,686 per ton, with an annual average volatility of 53%.

The amount of rubber Chinese companies control overseas is 2.5 times their domestic resources. The development of TSR 20 rubber futures can provide price risk management tools for companies, helping them to lock in costs and safeguard profits, ShFE said in a press release.

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