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On February 28, the polypropylene (PP) futures were smoothly listed on Dalian Commodity Exchange (DCE). In the week, the PP futures have seen continuously brisk trading, sound operation and active participation of corporate clients, with the market running smoothly on the whole.
Statistics show that in the five trading days of the first listing week, all the PP futures attained a total trading volume of 493,570 contracts (bilateral, the same below) and a total transaction amount of RMB 25.818 billion, with the total open interest amounting to 63,544 contracts at the closing on March 6. The average daily trading volume stood at 98,714 contracts with the average daily transaction at RMB 5.163 billion. During the week, the PP futures showed the pattern of consolidation with drops. On March 6, the PP1405 Contract closed with the settlement price of RMB 10,630 / ton, and the PP1409 Contract recorded the settlement price of RMB 10,392 / ton at the closing.
In the week, the PP futures saw the active participation of corporate clients, with the number and the proportions of the trading volume and the open interest of the corporate clients growing steadily. During the trading day on March 6, the number and the trading volume of the corporate clients accounted for 3.65% and 11.62% of the product’s total respectively; at the closing on March 6, the number and the open interest of the position-holding corporate clients accounted for 6.21% and 34.48% of the product’s total respectively. On the industrial chain, participation was found among the enterprises of production, trade and consumption, with the trade enterprises more active.
The active participation of the corporate clients implies the extensive concern and expectation of the industrial enterprises for the product. On the listing day of February 28, the China Petroleum and Chemical Industry Federation (CPCIF) sent a letter to congratulate on the listing of the PP futures contracts. The letter said that the listing of the PP futures contracts is another significant event for the plastic industry following the listing of the LLDPE and the PVC futures. As one of the major synthetic resins, the PP features a large market size, high dependence on imports and fierce price volatility, etc. Timely introduction of the PP futures trading is of great significance for further improving the structure of the plastic futures products, perfecting the synthetic resin hedging industrial chain and promoting the market-based reform of the PP industry. The CPCIF hopes that DCE could fully draw on the successful experience in the stable operation of the LLDPE and the PVC futures, effectively maintain the PP futures and give full play to the roles of the futures market in hedging and price discovery, so as to make new contributions to the development of China’s plastic industry.
“The listing of the PP futures is just timely,” said Zhang Chi, a PP futures analyst with Guotai Junan Futures, adding that the trading of the PP futures became increasingly brisk in the first listing week because, first, it coincides with the petrochemical producers bringing down the prices on the spot market recently with the spot prices falling and the traders’ demand for hedging have been intensified, and second, the arbitrage between the near and far-delivery months and the arbitrage between the PP and LLDPE futures products have been the prevailing investment strategies on the market. Currently, the PP futures show the pattern that the near-delivery contracts are stronger than the far-delivery contracts. The contracts of near-delivery months are not far away from the delivery but with large discounts and the petrochemical producers may reduce production for overhauls at any time, resulting in the limited price drops. However, the contracts of the far-delivery months are mainly affected by the release of the newly added capacity and it is expected that in the new capacity to be released there will be a large number of low-priced coal chemical products, resulting in the weak prices of the far-delivery contracts on the market. Therefore, the arbitrage model of buying contracts of near-delivery months and selling contracts of far-delivery months have been an important operational strategy. He believed that with the acceleration of elimination of inventories on the PP market, the fluctuations of the PP price will further attract more spot enterprises to participate in the PP futures, making the product function further in price discovery and risk management.
