The development of a Chinese commodity futures market should benefit hundreds of thousands of relatively small manufacturers by giving them an opportunity to hedge against fluctuating prices of industrial raw materials.

Most large manufacturing companies and State-owned enterprises have already been able to cover much of their pricing risks in various overseas commodities markets. But the smaller manufacturers prefer domestic markets because contracts are quoted in renminbi, for which they have a better understanding of trading rules and practices.

So it is most encouraging that China's domestic commodity exchanges are planning to introduce futures contracts on many more commodities, many relating to smelting, energy and chemicals.

China is not only a consumer of industrial materials, but also a major manufacturer, notes Yang Maijun, general manager of the Shanghai Futures Exchange.

Fluctuating prices pose contrary risks to consumers and producers. A consumer who can project the amount of a certain industrial material its production lines need may want to hedge against future price increases by buying futures. If the price goes up, it can cover additional costs with gains from futures. A manufacturer of industrial materials may want protection against possible price slumps by selling futures contracts.

As the economy continues to grow at a brisk pace, the need for consumers and manufacturers to have access to price hedging as a possible strategy becomes increasingly pressing. Meeting their needs would ensure a healthy level of market activity.

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