China Jinduicheng Seeks Approval to Trade LME Molybdenum

HONG KONG, May 5 -- China's two top producers of molybdenum have not been granted rights to trade overseas futures, more than 2 months after the London Metal Exchange launched a molybdenum contract MOD3=LX allowing them to hedge against price swings in global commodity markets.

Jinduicheng Molybdenum Group (601958.SS: Quote), China's second- and the world's fifth-biggest producer of the metal, was preparing to apply a licence from the China Securities Regulatory Commission (CSRC) to trade on the LME contract, a trade executive said.

"We have not received approval. Without that, we are not allowed to trade on the LME (molybdenum)," the executive said.

He said the firm was training staff and setting up systems for the trade. When that was ready, the firm would submit an application to the CSRC, he added, without providing a timeframe.

The executive said he expected the LME molybdenum contract would take 2-3 years to become the international benchmark.

China is the world's top steel maker and producer of molybdenum used in steel for the oil and chemicals sectors.

But CSRC has not announced any approval to state-owned firms on overseas futures since 2005, after the State Reserve Bureau lost millions of dollars on copper in 2005 and China Aviation Oil (Singapore) recorded a huge loss on oil derivatives in 2004.

But since then, the LME has launched steel, molybdenum and cobalt CBD3=LX contracts.

A CSRC press official said if a firm had the need, it could submit an application, but did not say how long it would take to get approval.

STILL 31

The China Securities Regulatory Commission allows 31 state-owned firms to trade overseas futures on which none is steel producer.

The authorised firms are required annually to submit in advance the types and volumes of the contracts they plan to trade for the year to CSRC.

"The volumes include futures and options," a metals trade executive at one of the 31 firms said.

He added the firms were allowed to trade futures and options on international exchanges and disallowed to trade over-the-counter (OTC) options.

"The overseas futures trade can not be opened too wide (to Chinese firms) as that could cause trouble," the executive said.

China Molybdenum Co (3993.HK: Quote), the country's top and the world's fourth-biggest producer of the metal, had no plan to obtain the right to trade on the LME contract, said He Feng, spokesman for the firm, which mines the bulk of its own concentrates.

"We won't trade futures, (as) the risk is big," he added.