Chicago 03/07/2015 - The launch of CME Group's zinc futures contract this week comes at a difficult time for market participants, which is reflected in subdued take-up so far.
The contract, which runs for 12 consecutive months with a unit purchase of 25 tonnes, has volume of two lots and open interest at 14 lots as of Friday, having rolled out on Monday. It is currently trading at $2,042 per tonne for October delivery, which is the listed starting month.
Still, CME Group is satisfied with the development and release of their product and is in contact with customers on how to bring value to the marketplace, it said, acknowledging that contracts take a considerable length to find a footing with investors.
"This contract was launched to help address a major concern of regional zinc users as to the status of physical material in warehouses," Young-Jin Chang, senior director of metals products at CME Group, said. "If we can solve this market need, then the contract will be successful."
This is the first time a North American zinc future has been traded in over 30 years and CME Group is receiving inquiries every day, Chang added.
A potential barrier is the overall stagnant commodity markets, which have seen little volume and volatility in recent sessions. This reflects a typical seasonal slowdown in the summer but also sluggish or non-existent growth in a host of global economies - notably China, the world's largest consumer of commodities.
Still, the current state of the markets have not discouraged Chang or CME Group because markets are cyclical in nature, he said.
"Market fundamentals consistently change so we focus our efforts on providing tools for our customers to manage that risk," Chang said. "We've received interest from market participants across the US, Europe and Asia. And we feel positive about the progress we've seen so far from our customers."
While the LME remains the dominant force in zinc futures, CME Group believes there is a need to provide a transparent regional benchmark that reflects global supply/demand imbalances and increasingly divergent regulatory structures.
(Editing by Mark Shaw)