(Yicai) Oct. 28 -- The London Metal Exchange launched yesterday a US dollar-denominated, cash-settled hot-rolled coil futures contract benchmarked to the settlement price of the HRC futures of the Shanghai Futures Exchange (SHFE), marking the first use of a Chinese metal futures price as the benchmark for a contract listed on an established overseas exchange via a settlement price licensing arrangement, according to SHFE’s press release today.

The contract, coded HS, trades in lots of 10 metric tonnes, is quoted in US dollars per metric tonne and is cash-settled, with 12 consecutive monthly maturities. Final settlement references the settlement price of the SHFE HRC contract expiring the following month as recorded on the LME contract's expiry date, converted at the USD/CNY Central Parity Rate published by CFETS. The design reflects SHFE HRC liquidity characteristics and international steel trading practice, offering producers, traders, processors and end-users a further price risk management tool.

To support the launch and market liquidity, the LME introduced a dedicated liquidity incentive programme to encourage electronic trading. As of 18:00 London time, 880 lots had traded on LMEselect, and total cleared volume for the day, including inter-office trades through RIBs/IDBs, reached 2,513 lots. CITIC, Nanhua, BANDS and FIS were among institutions actively participating.

The licensing arrangement gives overseas markets direct access to Shanghai steel prices, aiding risk management in international steel trade. It also represents recognition of a Chinese futures product by an established overseas market and reinforces Shanghai steel futures' role as an international pricing benchmark—an achievement in deepening practical international cooperation in China's futures market, advancing high-standard opening-up and supporting Shanghai's development as an international financial centre.

The collaboration combines the scale of China's steel industry, SHFE's price discovery capabilities and the LME's international market network. China is the world's largest steel producer and consumer, and SHFE HRC futures have grown into a large, liquid market whose prices increasingly serve as a pricing reference for Chinese flat steel imports into Asia-Pacific, the Middle East, North Africa and South America. Leveraging the LME's membership network and trading and clearing infrastructure, the contract lets a broader range of overseas participants access Shanghai prices for trade pricing and risk management.

In recent years, SHFE has expanded its product offerings, enhanced market mechanisms and advanced two-way opening-up, including licensing settlement prices for international use, opening designated futures and options products to overseas participants, expanding QFI access, advancing platform internationalization and facilitating cross-border physical delivery. SHFE currently offers 11 international products directly accessible to overseas participants and 47 QFI-accessible products, covering almost its entire portfolio, with clients spanning dozens of countries and regions across the commodity value chain.