With the listing of the polypropylene (PP) futures contracts, the first of its kind in the Year of Horse, just around the corner, on February 27, Dalian Commodity Exchange (DCE) held the “Forum on Listing of PP Futures and Plastics Futures Serving Real Economy” in Dalian in a bid to compare notes on the service of the petrochemical futures market for the industry and the roles and impacts of the listing of the PP futures as well as jointly welcome the PP futures to be listed on the 28th.
At the forum, Zhao Zhiping, Deputy Secretary General of the China Petroleum and Chemical Industry Federation (CPCIF), on behalf of the federation, congratulated DCE on the listing of the PP futures. He said that over the past decade, the CPCIF and DCE have continued to deepen the collaboration in the cooperative fields and carried out fruitful work in research and development as well as market expansion of the listed petroleum and chemical products, serving the industries and other areas. A total of three exchanges including DCE have currently listed 6 futures products closely related to the petrochemical industry including LLDPE and PVC. The listing and trading of the PP product is bound to play an increasingly important role in accelerating the building of the system of the petrochemical trading market in China and promoting the healthy development of China's petroleum and chemical industries.
Zhao said that the futures market plays an important role in transformation and upgrading, structural optimization and other aspects in the industry, and a considerable number of enterprises have been skilled in using the futures market instruments for risk management and assisting operation. But compared with the large number of plastics processing enterprises, currently the spot enterprises have reported low participation in the futures market. It is imperative to further improve the development of the supporting measures and enhance the service quality of the futures market for the spot enterprises, so as to attract more enterprises to participate in the futures market.
He said that in future the CPCIF and DCE will strengthen cooperation in the following 4 aspects: First, on the basis of increasing and improving the products on the synthetic resin industrial chain, we will continue to step up the development in the energy sector and the aromatics sector so as to form the leading edge of DCE in the energy and chemical sectors. Second, we will continue to make effective efforts in market training and industry service for the listed products, help the enterprises make better use of the futures market and boost the industrial transformation and upgrading as well as structural optimization. Third, we will make effective preparations for the Price Index Research Institute, and especially make substantive cooperation in providing basic data, research in financial derivatives and other aspects.
At the forum, an official of the industrial products division of DCE briefed the attendees on the contract rules of the PP futures and the operation and development of the LLDPE and PVC futures. From the listing of LLDPE and PVC in 2007 and 2009 to the end of 2013, the two futures products totaled a trading volume of 405 million contracts (unilateral) with 193,000 clients participating in the trading in 2013, and China has become the largest plastics futures market. In the market operation, the LLDPE futures have seen ample liquidity, benign interaction between futures and spot goods, the continuous improvement of the hedging efficiency for the industrial clients, the active participation of the spot industrial clients, and the stabilizing proportion of corporate positions in the total with the corporate clients accounting for 21% of the total positions and 9% of the total transactions in 2013; the liquidity and functions of the PVC futures market are yet to be improved but the spot enterprises have maintained the high attention. In the course of participating in the market, changing the longstanding pattern of fixed quote, some petrochemical enterprises have begun to adjust the price offers by referring to the plastics futures prices on DCE; some enterprises have effectively avoided the potential risks in the process of purchasing and selling the spot goods by making use of the futures market with the functions of the plastics futures market brought into relatively effective play. Next, through the efforts such as market cultivation of the PP futures, promotion of the system of registered delivery brands of the PVC and the introduction of the pilots for the bonded delivery service of LLDPE, DCE will further enhance the operation efficiency of the petrochemical futures market and the capacity for serving the market.
At the forum, the PP futures became the focus of the discussions, and expressing their expectation for the PP futures, the representatives of the enterprises compared notes on the enterprises facilitating the market operation with the PP futures, operating and maintaining the product after the listing so as to better serve the real economy and other aspects.
An official of Kingfa Sci. & Tech. Co., Ltd. said that the company specializes in the plastic products, which are highly related to the products listed on DCE, including the PP which records more than 300,000 tons a year in procurement. With increasing market price volatility of the PP and other products, the enterprises see the business risks expanding. The listing of the PP provides a new way for the enterprises to defuse the future risks in the spot business. Particularly, many of the company’s current clients are the top-500 enterprises, who expect to see the prices for a quarter, half a year or a year set in pricing. However, the spot market lacks the channel for locking the prices, resulting in the significant pressure for the business of the enterprises. The company hopes that the listing of the PP on DCE could solve such problems in its operation.
Wu Xiangdong, Deputy General Manager of Zhejiang-based Grand Resources Group, said that the listing of petrochemical futures has had great impacts on the development of the company, the new ways have been created other than the traditional trade in the businesses of the company, and the Board of Directors have fully recognized the positive energy in engaging in the futures market. In preparation for the listing of the PP futures, the PP business division of the company held a discussion meeting on the same day, and the company has been fully prepared for the adjustments to the management system and the trade and transaction system.
Hao Chunbo, Deputy Department Director of Beijing Huajin Chemical Industry Co., Ltd., said that the listing of the PP will provide another pricing mechanism for the channels of the upstream factories and a new indicator, serving as effective reference for the upstream sectors.
Cui Kezeng, Deputy General Manager of Shandong-based SCI99 Inc., said that the listing of the PP will provide the industrial clients with more instruments. With high price correlation, the cross-product arbitrage can be carried out between PP and PE. The synthetic resin index futures can be introduced after the listing of the PP, so as to link up the entire plastics industrial chain.
The attendees also provided opinions and suggestions on launching more petrochemical futures products, the opening up of the petrochemical futures market, the adjustments to the premiums and discounts for different delivery areas and the distribution of the delivery warehouses of related products and other aspects.
When making concluding remarks, a DCE official said that with 15 listed futures products including 2 chemical products, DCE has seen the generally effective market functioning and the relatively high participation of industrial clients, as well as the weak liquidity and restricted functioning of some products, which should be carefully assessed and relevantly improved, becoming the work to be pushed forward by DCE energetically this year. DCE will fully absorb the opinions and suggestions, further enrich and improve the petrochemical futures products system, refine the petrochemical futures, enhance the market operational efficiency and expand the market functions on the basis of striving to ensure the smooth market operation, better the structure of market participants, strengthen the market cultivation and consolidate the market services. He also reported the focuses of the market work for DCE this year.
At the forum, Shi Bin, Head of the Products Innovation Division of No. 1 Futures Division of the China Securities Regulatory Commission (CSRC), read out the “Official Reply to Dalian Commodity Exchange Listing the Polypropylene Futures Contracts” issued by the CSRC. Attending the meeting were more than 30 representatives from the CPCIF, the petrochemical products-related enterprises of production, trade and storage, the quality inspection institutions and the futures companies.