The China Securities Regulatory Commission (CSRC) releases a notice on March 19 to approve the trading of liquefied petroleum gas (LPG) futures and options of Dalian Commodity Exchange (DCE). The LPG futures contracts are to be listed for trading on March 30, 2020, and the LPG options contracts will be listed and traded on the next trading day after the transaction of underlying futures contracts happened. The LPG futures and options, as DCE’s first energy product, will effectively expand the service scope and products varieties of DCE, play a positive role in helping enterprises deal with price fluctuation risks and improve the trade pricing mechanism, and exert significance impact on the derivatives market serving the real economy.
The LPG, the associate gas of oil and gas field and the by-product of crude oil refining, is one of the major clean and green fuels as well as chemical materials with wide application.
China’s LPG market has recorded its rapid development, and its market scale is about RMB 180 billion (calculated in the average price of RMB 4,000 / tonnes in 2019). With the increasing demand in industrial and civilian use, the LPG consumption in China has kept rising, and the apparent consumption in 2019 was 47.06 million tonnes, accounting for 14% of the total in the world, thus presenting an average annual growth of 8% in the past 10 years. China’s LPG output in 2019 was 27.79 million tonnes, ranking the 3rd in the world, only second to the US and Saudi Arabia; and China imported 20.68 million tonnes of LPG in 2019 (mainly from the Middle East), and it became the largest LPG consumer and importer in the world, with the import dependence degree up to 44%.
An industry expert says that characterized by the large market scale and high standardization degree, it’s convenient to store and transport LPG, and the LPG product quality index system is clear for identification, which make LPG suitable for standard futures contracts trading. North China, East China and South China are the main LPG production, marketing and trading areas in China, with the total output of nearly 16 million tonnes (about 60% of the total in the country), the total consumption exceeding 30 million tonnes (about 70% of the total in the country), and the total import of nearly 20 million tonnes (about 99% of the total in the country).
LPG price can be affected by many factors. Upstream crude-oil price, international trade, shipping date, storage capacity, season, extreme weather and refine plant’s maintenance will all influence its domestic price, thus leading to great price fluctuations. Many industry enterprises have long had the appeal of price signal and risk-avoiding instrument reflecting the real market supply and demand. DCE’s launching of LPG futures and options is of great significance for serving relevant production, trading and consuming enterprises, and the simultaneous listing of LPG options will provide the market with more diversified risk-avoiding instruments and strategies.
The listing of LPG futures and options marks the first energy product of DCE, which will expand the field and scope of serving the energy industry and exert positive influence on strengthening the “1 completeness and 2 connects” strategy of DCE and accelerating the diversified and opening-up development of the derivatives market in China.
Currently, the whole world is at the special stage of preventing and controlling the COVID-19, and the international crude oil is encountering dramatic changes. The LPG futures and options offer a new instrument for LPG enterprises to fight against the epidemic, resume production and hedge against risks, and safeguard the whole industry chain during the anti-epidemic period.
A DCE official says that DCE will continue to intensify the frontline regulation and ensure the stable market operation after the listing of LPG futures and options, thus providing the industry and investors with a more open and fair trading environment and effective price-finding and risk-avoiding platforms and propelling the sound and stable development of the real economy.
