* Shanghai Futures Exchange to launch copper options onFriday
* China's first industrial options after soymeal, sugar
* Country is world's biggest copper consumer
By Tom Daly
BEIJING, Sept 20 (Reuters) - The Shanghai Futures Exchange(ShFE) will launch copper options trading on Friday, aiming totake a slice of a $270 billion global market in one of itsbiggest challenges yet to London and New York rivals.
The product, which follows the launch of sugar and soymealoptions last year, comes as the exchange also considers openingits flagship copper futures to foreign investors, and is a majorstep in China's prolonged effort to develop its derivativesindustry.
Options help metal consumers, producers and traders manageprice exposure. A contract gives the buyer the right - but noobligation - to assume a futures position at a specified price.
Over the past decade, the Shanghai bourse which was set upin 1999 has carved out a bigger share of the global copperfutures market, challenging the London Metal Exchange's (LME)near dominance as China's economy boomed and retail investorsflocked to commodities futures trading. Now it wants a part of the burgeoning options business.
Volumes of copper options traded on the LME totaled around$265 billion last year at current prices, up 0.3 percent on ayear earlier, while Comex copper options traded on CME Group almost tripled to 104,490 lots in 2017, worth about $7.3billion.
Some Chinese copper firms already trade options on theestablished London and New York markets, but others are not ableto stump up the foreign currency required as collateral fortrading. The ShFE copper contract is denominated in yuan.
"At the moment, ShFE copper options can be best seen asalternative to onshore market participants with restricted or noaccess to LME copper options," said Rochelle Wei, CEO of J.P.Morgan Futures Co.
Hedging in China rather than overseas may also betterreflect the domestic market for local players, said Qiu Guoyang,assistant general manager at Shenzhen-based brokerage JinruiFutures.
He expected the ShFE launch to eventually have an impact onoptions volumes on the LME, which was founded in 1877, althoughnot in the short term.
In an emailed response, the LME said it sees the Chinesemarket as a complementary trading system "stimulating arbitrageflow and helping to grow the market as a whole."
CME global head of metals, Young-Jin Chang, also welcomedthe new product and noted that 20 percent of its volumeoriginates outside U.S. trading hours, pointing to demand inAsia.
GOING GLOBAL
Underscoring its determination to support the optionscontract, the ShFE has lined up 18 market makers, to fuelactivity, far more than the handful that is usual forinternational exchanges. Those include a unit of Jinrui Futures, a subsidiary ofJiangxi Copper Co., one of China's biggestcopper smelters, and state-run diversified metals firm ChinaMinmetals Corp.
Swiss commodity trading house, Trafigura , whichhas a China-based trading unit, will also be involved in thefirst day of trading, a spokesperson said.
Success may depend on whether smelters and fabricators usethe home product for hedging or if it becomes a playground forspeculative investors, who often dominate other Chinese futuresmarkets, like iron ore and coal, and cause wild volatility inprices, analysts said.
Launching an options contract will also help ShFE garnermore traction with international players as it prepares to openits copper futures contract to foreign investors. ShFE has not given a date for the internationalisation yet.
The exchange launched a crude oil futures contract in March that aims to compete with rival global benchmarks andthe Dalian Commodity Exchange opened its iron ore futures to outside investors in May.
(Reporting by Tom Daly; additional reporting by Josephine Masonin BEIJING; Editing by Josephine Mason and Richard Pullin)
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