Thursday, April 28, 2016

A Chinese Sugar Option...........Maybe.


A Chinese Sugar Option – the Zhengzhou Commodity Exchange hopes to launch a Sugar Options Contract in 2016.
by Jane Yang, Bob Meara and David Nealis of Ceres Ltd

Over the last 12 months we have seen some major changes in the Chinese capital markets industry including a recent surge in Futures prices in China.

For those of us involved in the Chinese capital markets industry all too often we have heard about potential products being launched and with patience we are still waiting for some of them like the Crude oil contract to be traded in the Shanghai FTZ that potentially would include non-Chinese traders which would be ground breaking in China.
 And we have experienced products and policies being taken away over the last 12 months.
Jane Yang and David Nealis of Ceres Ltd on the CME trading floor
 
In the midst of this comes the hope of a Sugar Options contract launched by the Zhengzhou Commodity Exchange (ZCE).  Currently there is only one options contract traded in China (the World’s 2nd largest economy), which is the SSE50 ETF option.  

Zhengzhou Commodity Exchange (ZCE) has claimed that they are fully prepared to launch it anytime once they get final permission from CSRC (Chinese Security Regulation Commission.
ZCE is one of the four futures exchanges in China. The products traded in the exchange are mostly agriculture products; wheat, rice, cotton and sugar contracts among others are traded there.
 
For those who don’t trade sugar here is a quick macro picture of sugar around the world:

·         The world top 5 sugar producing countries are Brazil 38.7MT (Metric Ton), India 26 MT, China 11.4 MT, Thailand 10.6 MT and US 7.2 MT.

·         The top 5 importing countries are Philippines, Nigeria, EU, Iran and Iraq.

·         The total annual Sugar production worldwide is 172.5 MT. 

·          Total annual sugar consumption worldwide is 171MT and the total sugar stock worldwide is 42.2 MT. (Year 2015)

ICE No.11 Sugar contract VS ZCE Sugar futures contract

Product
Symbol
Contract Size
Quote
Tick Size
Contract Months
Trading Hours
London time
Minimum Trading Margin
ICE Sugar #11
SB
12,000 pounds (5442kgs)
Cents/pound
0.01cent/lb
3,5,7,10
8:30am-6:00pm
(London time)
 
ZEC White Sugar
SR
10 Tons
(10,000kgs)
CNY/Ton
1 CNY/Ton
1,3,5,7,9,11
Beijing Time
UTC+8
9:00-11:30 a.m. 1:30-3:00 p.m.
6% of contract value

 
 
ICE No.11 Sugar option contract VS ZCE Sugar futures options contract

Product
Symbol
Contract size
Quote
Tick Size
Contract
Months
Strike Price intervals
Last trading day
Trading hours
ICE No.11 sugar options
SO
One futures contract
Cents
1/100 of a cent per pound
Regular Options: 1, 3, 5,7,10. Serial Options: 2, 4, 6,8,9,11,12, For the January regular option, the March contract is the underlying future. For serial options, the underlying future is the next Regular futures contract month.
Strike Price Increment will be $.25 cents at all price levels
15th calendar day of the month that precedes the options trading month, or the first business day after the 15th should this day be a weekend or an Exchange holiday.
8:30am-6:00pm
(London time)

 

Product
Symbol
Contract Size
Quote
Tick Size
Contract Months
ZCE
White Sugar options
SR +C/P + Strick price
1hand of sugar futures contract
CNY/Ton
0.5CNY/Ton
1,3,5,7,9,11
Expiration Months
Amount of Stick Prices
Strike Price Intervals
Last Trading Day
Trading Hours  UTC+8
Two months before futures contracts’ delivery months
5 out-of-money, 1 at-the-money and 5 in-the-money according to the price range of exercise price
futures price < 3000RMB,  Strike Price intervals is 50RMB/Ton;
3000RMB7000RMB,  Strike Price intervals is 100RMB;
futures price>7000RMB, Strike Price intervals is 200RMB.
Last trading day of the options Expiration Months
9:00-11:30 a.m. 1:30-3:00 p.m.

 

 

 

 
 
Data from ZCE showed in 2015, that the sugar trading volume almost doubled and more than 30% of the trades were physical hedging. According to the their survey,  90% of the big saw sugar producers, 80% of big sugar trading companies, 60% of the large manufacture participated in sugar futures trading hedge their risk.

Most of China’s domestic sugar production is grown in the south of the country, mainly in Guangxi province which produces roughly 70% of China’s domestic sugar production and Yunnan province produces more than 15%.

Hua Tai Chang Cheng Futures forecasts a 22% from 2015 to 2016 total sugar consumption in China. The sugar consumption per Chinese is only 1/3 of the world’s average level, as the Chinese economy continues to grow and the tastes change in China we see a huge potential increase in Chinese domestic demand.  

David Nealis and Bob Meara of Ceres Ltd at the Shanghai Futures Exchange
We are hopeful that is if the contract launches, it will be an active contract.  

We look forward to trading the sugar options contract at China’s Zhengzhou Commodities Exchange.






If you are interested in participating in Chinese financial markets, please contact: info@ceres888.com