Trading in aluminium and zinc futures will begin on the exchange later this month
Dubai's Gold and Commodies Exchange (DGCX) is to launch new two new base metals futures contracts covering the aluminium and zinc markets.
The exchange, which already offers a copper futures contract, several gold futures contracts and a shariah-compliant spot gold contract, said that trading in the new base metals contracts will begin trading on March 22.
At 5 million tonnes, contract lot sizes will be smaller than the typical London Metal Exchange contract of 25 tonnes, and will be financially settled, as opposed to involving any physical delivery.
The exchange's CEO Les Male, told Zawya in a telephone interview that these would be the first of “a rolling programme of contract releases from DGCX” in 2019.
Speaking on the sidelines of the Richcomm Global Commodities Outlook conference earlier this month, Male also told Zawya that a 'mini-gold' contract aimed at retail investors (via banks) and a number of new spot FX currency contracts were also on the cards.
“We have a nice mix of client types, but first and foremost, the exchange is there to offer price risk management tools for clients to hedge their exposure. This is just another example of that,” he said during the telephone interview.
There are already a number of major metals exchanges around the world, with the London Metals Exchange being among the most prominent. Exchange data shows that it traded 183 million tonnes of aluminium in January (the most recent month for which data is available), and 69 million tonnes of zinc.
Male said that he would “not necessarily” measure the success of DGCX's new aluminium and zinc contracts on volume traded, stating that he expected them to appeal both to existing and potential exchange members (DGCX currently has just below 200 member organisations).
“I will measure success from the new members that come through,” he said.
Male argued both new contracts have local relevance, given that the United Arab Emirates is the world's fifth-biggest aluminium producer globally, and zinc’s use in steel making it important both to the region’s construction and manufacturing industries.
Although China dominates the aluminium market, producing almost 57 percent of an estimated global total of 64.3 million tonnes last year, according to the International Aluminium Institute, the Gulf Cooperation Council is the next-biggest region. It produced over 5.3 million tonnes, or more than 8 percent of the total.
An analyst's note published by Emirates NBD's commodities expert Edward Bell earlier this week predicted that aluminium prices are likely to decline in 2019 as both demand and supply are curtailed by a slowing Chinese economy. Global aluminium prices will also weaken as supply from major Russian producer, Rusal, find their way back onto the market after the US senate lifted sanctions in January, Bell's note said.
“We are lowering our forecast for aluminium prices in 2019 to an average of around USD 1,900/tonne compared with USD 2,150/tonne previously,” it added.
In January, DGCX announced record trading figures for 2018, with the $474.94 billion worth of contracts changing hands beating the previous record of $448 billion set in 2013. The total number of contracts changing hands also hit a record 22.26 million.
However, momentum slowed in February. Some 1.62 million contracts were traded on the exchange last month, down 22.7 percent on February 2017, due to higher market volatility in the same period a year earlier. The value of contracts exchanged also fell to $31.1 billion, down 34 percent on the $47.1 billion trading hands in February 2017.
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