China’s First Gas Energy Futures Listing For Comments Released
On March 9, 2020, Dalian Commodity Exchange (DCE) issued a notice to solicit public opinions on LPG futures contracts and related rules, marking that China’s first simultaneous listing of gas energy futures and options is approaching.
According to an announcement on the official website of DCE, in order to fully listen to market opinions, improve contract rules and ensure the functioning of the market, Dalian Commodity Exchange LPG Futures Contract (Exposure Draft), Dalian Commodity Exchange Settlement Management Measures (Draft Amendments for Comment), Dalian Commodity Exchange Delivery Management Measures (Draft Amendments for Comment), Dalian Commodity Exchange Standard Warehouse Receipt Management Measures (Draft Amendments for Comment), Dalian Commodity Exchange Risk Management Measures (Draft Amendments for Comment), Dalian Commodity Exchange Hedging Management Measures (Draft Amendments for Comment) and Dalian Commodity Exchange LPG Futures Business Detailed Rules (Exposure Draft) are released and waited for industrial comments and suggestions. The relevant solicitation feedback will start from March 9, 2020 and end on March 13, 2020.
Among them, Dalian Commodity Exchange LPG Futures Contract (Exposure Draft) provides a detailed introduction and description of the main terms and relevant parameters of the contract, delivery and settlement methods, standard warehouse receipt delivery, etc.
In terms of delivery quality standards, LPG products are characterized by high standardization and sufficient market competition. Based on the spot sampling inspection results, full consideration of the fuel LPG spot market and the national standard of GB11174-2011, DCE has carried out a wide range of enterprise research to ensure that the main delivery quality standards are consistent with the mainstream of spot trade. At the same time, the mixture gas(volume ratio 20% ≤ C3 ≤ 60%) is regarded as the standard product, and the LPG with C3 content (volume ratio 0% ＜ C3 < 20%), (volume ratio C3 ≥ 95%, pure propane) is regarded as the substitute. It is allowed to deliver pure propane and pure butane at the same time, and the weight ratio of pure propane meets [20%, 50%] is regarded as the substitute, with the discount of RMB 0/mt to meet the delivery demand of enterprises.
In terms of delivery methods, LPG futures are applicable to futures-to-spot, one-time delivery and rolling delivery methods with the delivery unit of 20mt. Among them, in order to ensure the full use of available delivery capacity, customers can apply for rolling delivery from the first trading day of the delivery month to the previous trading day of the last trading day of the contract. After the last trading day of the contract, all holders of open contracts shall perform the contract by delivery. The positions corresponding to the same client account trading positions shall be deemed to be closed automatically and shall not be delivered. The closing price shall be calculated according to the settlement price of delivery.
In the delivery area, the benchmark delivery place of LPG futures is Guangdong, and the delivery area includes South China, East China and North China. Eligible spot companies in the delivery area can now apply for delivery factories and warehouses.
In order to ensure the smooth operation of the market, DCE has set the monthly price limit of LPG futures and the minimum margin ratio as 4% of the settlement price of the previous trading day and 5% of the contract value respectively, which can cover most of the daily fluctuation range and meet the requirements of risk control. In the design of position limit system, for non-futures company members and customers, if the unilateral position of the contract is less than or equal to 80,000, the position limit is 8,000; if the unilateral position of the contract is more than 80,000, the position limit is 10% of the unilateral position. Considering that there are many factors affecting the LPG price and the volatility is large, in order to prevent the risk of closing positions, the principle of strictly limiting positions is adopted. From the 14th trading day of the first month to the delivery month, the position limit set by DCE is 1,000. After entering the delivery month, the position limit is 500.
LPG is short for liquefied petroleum gas, and it is a mixture by-product obtained in the oil refining process at refineries. LPG’s components are not fixed, and its main components are propane, butane, propylene and ethylene. With the development of the petroleum chemical industry, LPG occupies an important position in fuel gas-to-chemicals deep-processing, civil-use and industrial burning fields as a basic chemical feedstock and new fuel. At present, the LPG industry is in the mature stage, and it has the following market characteristics. First, as for the traditional burning field, restricted by the natural gas popularization, the LPG market share in the traditional civil-use burning field is squeezed. However, with the population growth and urbanization development, LPG can replace natural gas in the commercial-use and industrial burning field. Second, in terms of the deep-processing field, the large-scale refineries and importers begin to build a large number of deep-processing units based on the sufficient resources, and the feedstock gas supply in China’s LPG market gradually declines. The downstream independent deep-processing enterprises’ survival space narrows, and the industry threshold gradually improves restricted by tight feedstock supply and large investment.
In China’s LPG market, the direct upstream feedstock of LPG is crude oil, and its downstream products include MTBE, alkylate, propylene, MEK, SBAC, etc. After the above deep-processing process, LPG’s remaining components can be used as fuel in the civil-use or industrial-use field.
China is the largest LPG consumer and importer in the world. In recent years, China’s LPG prices fluctuated violently, accelerating the development of LPG energy futures, which can not only serve the national energy security strategy, but also help LPG related enterprises to innovate sales mode and improve risk management ability. In addition, it is of great significance to promote the energy market-oriented reform and ensure the stable operation of China’s petrochemical industry.
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