An official of the agricultural products business department of Dalian Commodity Exchange (DCE) said recently in an interview that considering the distribution of trade and logistics in the spot market, the price representativeness, the delivery costs and the trend of industrial development as well as other factors, DCE has set delivery areas in the seven provinces and regions of Shandong, Jilin, Hebei, Heilongjiang, Henan, Inner Mongolia and Liaoning, which feature high production and convenient transportation, selected Jilin as the benchmark delivery region, and set delivery factory warehouses in main production provinces and regions with convenient transportation as well as delivery warehouses at transit points in logistics.
The spot market of corn starch features relatively concentrated production areas, widely distributed consumption areas, high commercialization and clear directions of logistics, and high correlation of prices among different regions, etc. according to the data from the China Starch Industry Association (CSIA), in terms of production, the top nine provinces and regions of Shandong, Jilin, Hebei, Heilongjiang, Henan, Shaanxi, Inner Mongolia, Liaoning and Shanxi recorded a total production of 22.95 million tons in 2013, accounting for about 97.7% of China’s total corn starch production. With regard to consumption, the corn starch is consumed in widespread areas with the coastal areas taking an outstanding position including the Yangtze River Delta area recording about 17%, the Pearl River Delta area about 14%, Shandong peninsula about 12% and Fujian area about 7% of the total consumption. The supplies mainly flow from North China (including Shandong) and Northeast China (including Inner Mongolia) to East China and South China. There is high correlation in corn starch prices among different regions, and in Shandong and Jilin, the two main production provinces in North China and Northeast China respectively, for example, the correlation index of the average factory prices of corn starch stood at 0.95 in 2013.
The official said that the futures delivery sites should be in the regions that are the mainstream trade areas featuring representative prices, sufficient storage capacity or production capacity, adequate logistics conditions and convenience in organizing delivery and receiving goods, and according to the features of the spot trade of corn starch in China, among the nine main production provinces ranking high in production of corn starch DCE has selected the seven provinces and regions of Shandong, Jilin, Hebei, Heilongjiang, Henan, Inner Mongolia and Liaoning with high production and convenient transportation in Northeast China and North China as the delivery regions, in a bid to facilitate organization of delivery, reduce the delivery costs and help the industrial clients use the corn starch futures in alternative hedging. The provinces of Shaanxi and Shanxi, where the automobile transportation is adopted as the main means, have not been selected as delivery regions at present because of the relatively high costs.
In terms of the selection of the benchmark delivery regions, the official said that as China's major corn producing province, Jilin has been selected by DCE as the benchmark delivery region because the production is in large quantities, the products are highly commercialized, and almost all the sales are outside the province with great impact on the corn starch prices in sales areas especially South China. She also pointed out that although Shandong is also an important corn production area with the highest production and sales of corn starch in China and substantial impact on the corn starch prices in Hebei, Henan and other corn starch production areas as well as the sales areas in East China, the problem of value added tax invoice for discount will take place in the process of delivery. Therefore, on the basis of fully listening to the opinions on the market, Hebei, Shandong, Henan and other regions have been selected as the non-benchmark delivery regions.
In the setting of premiums and discounts, DCE has comprehensively analyzed the relevant data from 2007 till now from the CSIA and other information providers. According to the record data, the price difference of corn starch between Jilin and Shandong is not stable, and considering the record data of price difference and the opinions on the market, DCE has selected the intermediate value and set the premium and discount for Shandong and Jilin at RMB 95 / ton. As the prices in the factory warehouses in southern part of Heilongjiang, northern part of Liaoning and northeastern part of Inner Mongolia are close to those in Jilin and the raw materials are from the same sources, the premium and discount is set at RMB 0 / ton. As the southern ports in Liaoning are close to Hebei in location, the premium is set at RMB 60 / ton, basically equal to the minimum transport costs. A premium of RMB 60 / ton is set for all delivery warehouses in Hebei and Henan.
The official said that the setting of delivery sites is an important part of the designing for commodity futures contracts, affecting the activeness of the industrial clients in participating in the futures market and regression of the futures and spot prices and having direct impact on the functioning of the futures market. On the basis of in-depth analysis of the features of the corn starch market and thorough research and survey in the distribution of production and sales, the prices and the trade features in the spot market, DCE has formed the existing designing scheme for delivery sites, and in the market operation in the future, DCE will further improve the delivery system and standards of premiums and discounts in accordance with the changes in the spot industrial pattern and the spot market conditions.