China adds more commodity options to hedge price risks – report

China has launched options for natural rubber, cotton and corn, adding to the tools available to hedge price risks in the world’s major commodity market, the state-run Xinhua news agency said in a report.

Approved by the China Securities Regulatory Commission (CSRC) early this month, the new options trading on the Shanghai Futures Exchange, Zhengzhou Commodity Exchange and Dalian Commodity Exchange, respectively, doubled the amount of options listed on the country’s three commodity exchanges, Xinhua said.

The options for natural rubber included eight trading contracts, those for cotton included four contracts while corn options had five contracts, it added.

Options give a holder the right to buy or sell a commodity at a particular strike price and allow greater hedging flexibility for commercial hedgers such as processors and traders.

China launched soymeal and sugar options in 2017, its first such commodity derivatives. It started copper option trading in September 2018.

Xinhua quoted CSRC spokesperson Gao Li as saying that spot commodity prices of natural rubber, cotton, and corn had seen frequent fluctuations in recent years, and the trading of related options will help companies manage risks in an individual and sophisticated manner.

It will also help reduce insurance costs for farmers and better serve the vitalization of rural areas, Gao said.

Launching these options will expand the scope of option products and enrich derivative tools that can serve the real economy, said Luo Xufeng, general manager of Nanhua Futures.

Shekhar Ghosh is a communications consultant and and former journalist, who has edited and written for publications such as like Business India, Business Standard, Business Today and Outlook.

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