VIEWS
RESOURCES: Commodities Debut on the JSE
Recent Gauteng Business News
In
a week in which weak dollar and inflation fears in the US continued to
fuel
demand for metals, and gold
reached record prices, local investors interested in taking advantage
of the
price movements of these metals, began trading rand-denominated gold,
platinum
and sweet crude oil futures contracts for the first time on the JSE’s
commodities derivatives market. This marks a new focus for the JSE.
Until now,
only agricultural commodities have been offered by the exchange.
“We are confident
that trading will gain traction as more and more investors realise that
they
can trade these highly traded commodities in an easy and more
affordable manner,”
comments Rod Gravelet-Blondin, Head of the Commodities Division at the
JSE.
Until now,
investors would have had to trade these
commodities on international markets using their foreign exchange
allowance and
would have been subject to exchange control regulations. Now
individuals and corporates have no limits in terms of trading these
three
commodities on the JSE. This makes it easier for these investors to take
advantage of the current interest in these resources as alternative
hedging or
diversification instruments. Pension funds and
long-term insurance companies are however, subject to their 20% foreign
allocation limits and asset managers and registered collective
investment
schemes are subject to their 30% foreign allocation limits when trading
these
commodities.
In
terms of a recent agreement signed with the world’s largest derivatives
marketplace, CME Group, the locally listed contracts will be
cash-settled using
benchmark gold settlement prices referenced from CME’s COMEX division
and
platinum and crude oil prices from its NYMEX division. Given that the
underlying instrument is a contract traded on the Nymex or Comex,
investors
have the added advantage of accessing highly liquid international
markets via
these rand-denominated contracts.”
“The two metal
commodities should interest local investors as South Africa is the world’s
largest platinum producer and the third largest gold producer. The
price of the
commodities is generally linked to the prices of mining stocks. The
liquidity
that the current market makers and any new ones will bring to the
market can
only be beneficial to investors,” says Ashley Erasmus, Senior
Commodities
Trader at Nedbank Capital. Standard
Bank and Rand
Merchant Bank will also be quoting live rand prices for investors.
To make these contracts
more attractive to individual investors, the JSE has made the contracts
based
on smaller lot sizes than those traded on the US
markets. “We have taken
accessibility into account, for instance the minimum contract size for
crude
oil on our market is 100 US barrels (15 898.73l) with contracts
expiring in
Feb, June, August and December, while in New York the contract minimum
is 1000
barrels,” explains Gravelet-Blondin.
For both gold and
platinum, each contract size equates to 10 troy ounces with the minimum
price
movement set at 100 South African cents per ounce. The gold contract
expiry
months are April, June, August and December with a minimum of two
expiries
always available for trade. The contract for platinum expires in
January,
April, July and October with a minimum of two expiries always available
for
trade.
“We are
particularly excited about the opportunities that a crude oil contract
offers.
Oil has a knock-on effect on all sectors of the economy. Notably, as
diesel is
a major cost in farming, this will give our agricultural market a tool
to hedge
a major input cost. Organisations
in the transport
and manufacturing sectors that use large quantities
of fuel may also want to hedge their energy usage against the benchmark,”
adds Gravelet-Blondin.
In June
2008, the South
African Reserve Bank granted the JSE approval to trade future and
option
contracts on Foreign Referenced Commodities, subject to certain
conditions. In
February this year, the JSE listed a Chicago
corn contract and anticipates listing additional cash- settled
commodities in
the coming year.
Business News Sector Tags: Resources|