SHFE to Allow Bonded Warehouse for Futures Delivery

Dec. 23 （Bloomberg） -- The Shanghai Futures Exchange will allow copper and aluminum at bonded warehouses to be delivered against futures contracts, a move expected to facilitate physical flows and bring Shanghai prices closer to international market levels.

Two warehouses at Yangshan port in Shanghai will provide delivery services from March 16 next year, and the bourse will start a trial scheme from tomorrow, according to statements posted on the exchange website today.

China is the world’s largest consumer of copper and aluminum. The commodities futures bourse was the fourth-largest in the Asia Pacific by trading volume in the first half of this year, according to the Futures Industry Association.

“It’ll be more convenient for physical traders to do business at a lower cost,” Fang Junfeng, an analyst at Shanghai CIFCO Futures Co., said by phone. “As a result, Shanghai prices will move more closely with London.”

The announcement came after a notice by the Ministry of Finance that the exchange will waive value-added taxes from Dec. 1 to commodities delivered within bonded areas as part of the trial scheme to make Shanghai an international financial and shipping hub.

“This is very good news to trading firms, as it facilitates the arbitrage trading by cutting costs,” Yu Ye, an analyst at Minmetals Futures Co., said by phone from Shenzhen.

Trading Eased

Arbitrage traders usually buy copper in London and sell it in Shanghai to profit from a price difference. China needs to import approximately 44 percent of its estimated 6.8 million metric ton consumption this year, according to metals researcher Beijing Antaike Information Development Co.

Trading firms which have shipped in the metal don’t need to pay the 17 percent value-added tax for futures delivery, and can reduce fees, if they choose bonded warehouses, according to a research note by the HNA Topwin Futures Co. today.

Trading volumes for copper in Shanghai have tumbled 39 percent in the first 11 months, according to exchange data, and are set for the first yearly drop since 2006.

“This also means more copper is available for delivery, given larger capacity of the bonded warehouses,” HNA Topwin said.

The exchange added more warehouses to its appointed list earlier this week to increase storage capacity for copper, aluminum and zinc. The bourse also trades gold, rubber, fuel oil, and steel futures.

--Helen Sun. Editors: Richard Dobson, Ravil Shirodkar.