(Yicai) Nov. 27 -- Platinum and palladium futures began trading in China for the first time today, offering a long-awaited domestic hedging tool against volatile prices and marking a step toward reducing the country’s heavy dependence on imports.

Following approval from the securities regulator, three futures contracts each for platinum and palladium were listed on the Guangzhou Futures Exchange, with the benchmark price for platinum set at CNY405 (USD57.20) per gram and CNY365 per gram for palladium. Options will be launched tomorrow.

Platinum and palladium are important raw materials used in green industries for such things as vehicle exhaust emissions control, wind power, and hydrogen energy. In China, roughly 60 percent of platinum and nearly 80 percent of palladium are used in green-related industries.

China is the world’s largest consumer of platinum group metals, but is highly dependent on imports, exposing domestic companies to risks from international price swings and supply chain insecurity. 

Imports of platinum and palladium reached 91.1 tons last year, accounting for 71 percent of the country’s total supply. Of this, 81.7 tons were platinum imports, with a total value of CNY22.6 billion, while the 9.3 tons of palladium imports were worth CNY1.91 billion.

“This year, platinum prices surged sharply following a three-year shortage, bringing cost increases and price risks to Chinese platinum-using firms,” said Deng Weibin, managing director of the World Platinum Investment Council, Asia-Pacific. “This also highlights the importance of the launch of platinum and palladium futures.”

Chinese yuan-denominated platinum and palladium futures and options will make it much easier for new energy companies to manage risk, Deng noted.

They eliminate foreign exchange rate risks, while delivery design also aligns better with domestic industrial needs, improving hedging efficiency, he said, adding that options also provide additional flexibility, letting firms cap potential losses while preserving upside potential.

Annual price volatility for platinum and palladium has exceeded 20 percent over the past five years, said Li Jun, a researcher at Guangzhou Financial Holdings Futures, so businesses will be eager to use derivatives to manage price risks. 

In the future, platinum group metals products from major suppliers such as South Africa and Russia may directly enter China’s market and be traded via yuan-based delivery contracts, Li added.

Editor: Tom Litting