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Formal Launching of Free-trade Zone and New Opportunity to Metal Market

China formally launched a free-trade zone in Shanghai on September 29. Off-shore settlement, free exchange of RMB and free circulation of both domestic and foreign staple commodity will be made a reality in the free-trade zone. Price margin between domestic and foreign staple commodity is expected to be lessen, and this will provide a good development opportunity for exchange market of domestic and foreign staple commodity.

The policy for commodity market such as non-ferrous metal in Shanghai free-trade zone includes gradual permission for enterprise abroad to join in commodity futures trading, expansion and improvement of futures bonded delivery trial area, expansion of warehouse receipt financing, support for equity trust trading institution to set up comprehensive financial service platform in this experimental area, exploration to put up international staple commodity trade and resource allocation platform, simplification of inbound and outbound custom formalities, implementation of new custom bonded commodity circulation management etc.

In addition, the free-trade zone not only offers preferential tax policies, but has brought in some innovation in trade system. Permission to more free commodity entry and exit in free-trade zone will to a quite large extent solve the problem of unsmooth logistics chain for tangible goods trade of non- ferrous metal. The mode of “Streamline Administration and Institute Decentralization” further simplifies administrative approval procedures and helps save both time and cost of company.

Based on data from China Nonferrous Metals Industry Association (CNMIA), total volume of import and export trade of China's non-ferrous metal reached USD 166.4 billion in 2012 with year-on-year growth of 3.7%. The import volume was USD 114.9 billion and export volume was USD 51.5 billion.

Innovation and openness of free-trade zone is helpful for commodity free circulation of non-ferrous metal during import and export, thereby facilitating development of futures market and attracts more foreign investors. Transit trade of non-ferrous metal has some financial feature, and the free-trade zone will offer a relatively better financing platform.

Since the formal launching of free-trade experimental zone in Shanghai, more enterprises related to copper and other non-ferrous metals have swarmed into the free-trade zone. For example, Jinchuan Group, together with Maike Holding have invested RMB 1 billion to establish the largest staple commodity trade enterprise in the free-trade zone. Another enterprise is Jinyuan Futures held by Tongling Nonferrous Metals Group Holding Co., Ltd. etc. In recent days, Jiangxi Copper Corporation also releases news that it would establish a subsidiary in free-trade zone in Shanghai to avoid various trade constraints such as foreign exchange control, financial cost etc.

Launching of free-trade zone not only meets the increasingly mature development trend of staple commodity trade, but brings good news to non-ferrous metal industry, especially to copper, due to the combination of commodity and financial feature.

If LME sets a delivery warehouse in the free-trade zone, domestic traders will be able to complete delivery in the free-trade zone. Futures delivery will promote development of such industries as logistics in the free-trade zone. Meanwhile, difficulty for international investment banks to control futures price through entry and exit volume control of delivery warehouse receipt will increase, thereby strengthening China's international pricing right of staple commodity.

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