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The China Securities Regulatory Commission held a press conference on November 16 to announce its approval of the listing and trading of the mono ethylene glycol (MEG) futures contracts of Dalian Commodity Exchange (DCE) on December 10, 2018. The MEG futures is another chemical product launched by DCE after LLDPE, PVC and PP. Industry insiders believed that the MEG futures will play a positive role in assisting enterprises in dealing with price fluctuations and improving the trade pricing system.
It is learnt that MEG, as an important basic organic raw material of the petrochemical industry, has been widely used in producing polyester fiber, polyester bottle chip, unsaturated polyester resin and freeze proof agent. Its terminal products include clothing, carpet, curtain and various kinds of bottles, which are closely related to our daily life. Polyester products consume 87% of MEG in the world; over 90% of the MEG output in China is used for producing polyester fibers like terylene.
China is the largest MEG importer and consumer in the world. From 2007 to 2017, the average annual increase of MEG output in China was 16.1%, and that of apparent consumption was 8.5%. In 2017, the capacity and output of MEG in China were 8.06 million tonnes and 6.146 million tonnes, respectively, the latter taking up 22% of the total output in the world; and the apparent consumption was 14.307 million tonnes, accounting for 50% of the total consumption in the world. Though China’s MEG output has maintained a rapid growth in recent years, its production has long fallen short of demand due to the huge consumption, presenting a highly dependence on import. In 2017, China imported 8.751 million ton of MEG, with the import dependence rate of 58.5%.
A market participant said that the MEG is of high standardization degree and easy to store and transport. Its quality indicator system is clear for identification, which are favorable for standard futures contract trading. There are thousands of enterprises in the whole polyester industry chain in China, and their enormous MEG production and trading scale will guarantee the sufficient amount for futures delivery. East China is the major MEG import, production and consumption area, and the trading pattern and direction are relatively centralized and clear. In 2017, the MEG consumption in East China reached 11.49 million ton, taking up 77.2% of the total consumption in China. All these have laid a foundation for the listing of the MEG futures.
With the changes in the fundamentals of supply and demand at home and abroad and the influence of international environment and macro policies, dramatic fluctuations have been seen in MEG price in recent years. Under such background, industry enterprises have long had an appeal for the listing of the MEG futures to make a price and manage risks.
In this context, the listing of the MEG futures is of great significance to serving domestic and overseas MEG production, trading and consuming enterprises. With the steady launching and operation of the MEG futures, relevant industry clients at home and abroad will gradually take part in futures trading and promote the functioning of the price-finding function of the MEG futures, thus accurately reflecting the MEG supply-demand change in China, providing enterprises with an open, transparent and continuous price reference and optimizing the existing pricing mechanism. Meanwhile, the enterprises in the polyester industry chain can hedge via the MEG futures and effectively hedge against price fluctuations in the market. As a result, they can concentrate on production and operation and enhance their risk-prevention capacity and core competitiveness, thus benefiting the long-term sound development of the whole industry. In addition, the listing of the MEG futures will further enrich the varieties of chemical futures products in China, construct a derivatives system with diversified products and effective functioning for the industry chain, and further expand the scope of the futures market in serving the real economy.
A DCE official told the Futures Daily that DCE has researched and promoted the listing of the MEG futures since 2013. On the basis of widely soliciting public opinions and making full demonstration, its contract and rules design has been completed lately, and public opinions have been recently solicited. And the recruiting of delivery warehouses has been underway. Relevant business and technical systems are ready. Next, DCE will firmly advance relevant preparation and market cultivation before the listing. After the successful launching of the MEG futures, DCE will intensify front-line regulation and maintain the stable operation of the market, so as to provide relevant industry enterprises and investors with an open, justice and effective price-finding and risk-avoiding platform and boost the development of the real economy.
