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The contracts of the polypropylene (PP) futures, the first futures product approved for listing on the domestic futures market, will be listed and traded on Dalian Commodity Exchange on the 28th. With the listing of the PP futures contracts around the corner, a DCE official was interviewed on relevant issues.
1. What impacts will the listing of the PP futures have on the petrochemical and other related industries?
DCE Official: The synthetic resins are the main raw materials of plastic, and the plastic industry is an important raw material industry in the national economic development, taking an important position in the national economy. The polypropylene (PP) is the world's second largest general-purpose synthetic resin, accounting for about 30% of total consumption of synthetic resins, as well as the resin product with the fastest growing consumption and the widest purposes. Considered as the product with the most development potential in the five major synthetic resins, the PP covers a wide variety of industries and is extensively used in the automotive industry, household appliances, electronics, furniture, packaging, building materials and other fields.
China is the world's largest consumer market in polypropylene, with the apparent consumption amounting to 15.83 million tons in 2013 and the annual consumption reporting an average growth rate of over 10% in recent years. With a wide variety of fields related in the downstream consumption, a long industrial chain and a large number of factors affecting the prices, the PP records the most frequent and severe price fluctuations. In 2008, under the influence of the financial crisis, the price used to top at RMB 17,000 / ton and bottom at RMB 6,400 / ton; even in ordinary years the price also saw significant fluctuations with the price volatility at 47%, 33% and 29% in 2009, 2010 and 2011 respectively. With the fierce price volatility, the relevant enterprises are earnestly calling for the listing of the PP futures so as to avoid risks.
Since the listing, the futures products of LLDPE and PVC, two of the five major synthetic resins, have played an exemplary role in industrial hedging, resulting in higher expectation of the spot enterprises for the PP futures. The introduction of the PP futures will provide an instrument for the enterprises to manage the price risks, and meet the demands of the spot enterprises for hedging and avoiding risks; it will help form the authoritative prices which are nationwide unified and feature the correlation between domestic and foreign markets, provide the relevant enterprises with business guidance and enhance the overall business level of the industry; it will contribute to completing the hedging chain of the resin industry together with the listed futures products of LLDPE and PVC and better serving the industries.
2. What are intrinsic associations between the PP futures and the two DCE-listed chemical futures products of LLDPE and PVC? What impacts will the two products on the operation of the PP?
DCE Official: Among the world's five major general-purpose synthetic resins of polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC), polystyrene (PS) and ABS resin, PE, PP and PVC are the top three with the combined consumption accounting for more than 80% of the world’s total resin consumption. In terms of upstream raw materials, all the five major synthetic resins can be produced from the petroleum; regarding the consumption areas, PP, PE and PVC all see the three major markets in North China, East China and South China as the main distributing centers for consumption and trade, which cover more than 80% of the total consumption; with respect to the main market operators, most of the upstream producers and midstream traders operate PP, PE and other resin products at the same time; with regard to the downstream consumption, the PP is mainly used in weaving, injection molding, film, sheets, pipes and other fields, overlapping with the downstream consumption fields of PE and PVC to some extent but with different focuses. For example, more than 99% of the raw material for the plastic woven products is the PP. According to the statistics of the China Plastics Processing Industry Association, the number of the plastic weaving enterprises above the designated size has reached 7,300 in China.
Currently, LLDPE and PVC have been successfully listed on DCE, with stable market operation, brisk trading, and high utilization of the enterprises as well as effective functioning of the futures market. The listing of the PP will promote the market competition, form the close linkage with related products and the authoritative prices featuring mutual reference, improve the market efficiency and scientifically guide the business of relevant enterprises. More importantly, after the listing, the PP futures, together with the listed LLDPE and PVC, will include the three most important general-purpose resin products, so as to improve the hedging industrial chain for the enterprises, further expand the range of the service for the plastics futures market and better serve the plastics enterprises.
3. Among various PP products, why has DCE chosen the narrowband PP as the contract object, and what are the principles for DCE to design the contracts and rules for the PP futures?
DCE Official: In designing the futures contracts and related rules, DCE has always adhered to the orientation toward keeping close contact with the spot market and serving the real industry. In designing the contracts and rules for the PP futures, DCE has selected the narrowband PP featuring the largest market size, concentrated purposes, few grades and uniform quality as the traded product of the futures contracts. Compared with other PP products, the narrowband PP records the largest consumption and is mainly used in the production of woven bags for packaging of industrial and agricultural products, with the consumption of the narrowband PP reaching more than 6 million tons in 2013, accounting for about 40% of the total PP consumption. Calculated on the basis of the price of RMB 12,000 / ton, the market size moderately stands at about RMB 70 billion. In addition, with comparatively intensive grades and simple quality standards, the narrowband PP features easy standardization and inspection, and it is suitable for the futures trading.
In formulating the PP futures-related rules and systems and selecting the delivery regions, DCE has fully considered the circulation modes and patterns of the spot trade according to the market characteristics of the product while referring to the successful experience in the operation of the LLDPE, PVC and other products. For example, in selecting the delivery sites, generally we should choose the regions with highly representative spot prices and main points of spot trade as well as reliable and secure storage and logistics conditions so as to meet the demand for the large amount of delivery in special cases. The PP features distributed production capacity and relatively concentrated consumption in China with the domestic trade flowing from Northwest China, Northeast China and other regions with abundant capacity to East China, South China, North China and other main consumption regions which see brisk PP trade and highly representative prices. And East China, South China and North China are also the main trade distributing centers for PE, which, like the PP, is among the five major general-purpose synthetic resins, and features similar product characteristics to and the same source as the PP. The traders usually operate at the same time various plastic raw materials including PP and PE, which generally use the same channel in the process of storage. Therefore, considering the comprehensive factors, DCE has selected Zhejiang, Shanghai, Shandong, Guangdong and other major consumption provinces and municipalities as the locations for the PP delivery warehouses.
4. Please brief us on the main processes for DCE to develop the PP futures.
DCE Official: Since developing the LLDPE and other products, DCE has also focused on the research in the PP product. In February 2012, DCE worked with the Ministry of Industry and Information Technology in the research task of “Using the Futures Market to Promote the Development of the Chemical Industry”, conducting extensive and in-depth market research in East China, South China, North China, Northeast China and other major regions of plastic production, consumption and distribution, and joining hands with the Plastic National Standards Committee, China Certification & Inspection Group Inspection Co., Ltd. (CCIC), SGS-CSTC Standards Technical Services Co., Ltd. and other quality inspection institutions in conducting the comprehensive spot checking for the PP products on the market, so as to fully demonstrate the delivery quality standards of the contracts. In the course of designing the contracts, DCE has carried out in-depth survey and research, organized a lot of work in the market demonstration, and had many discussions with PP producers, consumers, traders and storage and logistics enterprises as well as quality inspection institutions and national standards setting institutions, in a bid to extensively listen to their opinions on designing the contracts and continue to improve the contract designing. Besides, DCE has referred to the experience of the relevant markets at home and abroad and fully drawn on the successful experience in the market operation of the LLDPE and PVC futures, finally completing the designing of the rules and contracts of the PP futures.
In April 2013, the China Securities Regulatory Commission (CSRC) approved DCE establishing the project of the PP futures in the official reply; in May 2013, DCE submitted the application for the listing of the PP to the CSRC, who agreed on DCE choosing the listing time in the official reply in January 2014; in February 2014, DCE submitted the application for the listing of the contracts, and on February 14, the CSRC approved the listing and trading of the PP futures contracts on DCE in the official reply.
5. In the future, in what aspects will DCE work to maintain the operation of the PP product and promote the market development, and what expectations do you have for the future development of the product?
DCE Official: As early as the research in the development of the PP futures product and the demonstration of the contract rules, DCE widely promoted the product in visits, discussions and other forms; recently, in order to promote the listing of the PP and ensure the successful operation, DCE has stepped up the training and promotion for the PP futures, having organized various training sessions for analysts and spot enterprises and more than 10 market promotion events and trained thousands of personnel; the futures companies have also conducted the market development and service at the relevant enterprises on the plastic industrial chain, some futures companies have begun to design the arbitrage modes between the PP and related products for professional investors and all market participants have been fully prepared for participation in the market.
After the listing of the PP futures, DCE will strengthen the market supervision and service, and make effective efforts in cultivating and maintaining the product. On the one hand, DCE will intensify market supervision, make effective early research and judgments in market risks, substantively fulfill the supervisory and service responsibilities in trading, settlement, delivery, monitoring and other important processes, and give full play to the role of coordinated supervision featuring “five in one” so as to actually prevent, control and defuse the market risks and ensure the smooth operation of the market. On the other hand, DCE will relevantly step up the expansion of and service for the industrial clients, actively cooperate with the industry associations and focus on serving and cultivating the industrial clients; in addition, DCE will continue to deepen the industry and market research, extensively listen to the opinions and suggestions on the market, timely improve the contracts and rules according to the market changes and demands, and carefully and effectively cultivate the product. We believe that with the concerted efforts of DCE, futures companies, spot enterprises and professional investors, the PP futures will achieve safe and smooth operation, increasingly bring the functions into play and effectively serve the development of the industries and the real economy.
