LPG Futures and Options Trading Started at DCE

SCI99

2020-03-31

China LPG Futures Began Trading

On March 30, 2020, the simultaneous launch of LPG futures and options is the first time the derivatives will debut nearly simultaneous on a Chinese commodity exchange. In terms of the options trading for LPG, it will begin from March 31, 2020.

In the spring of 2020, there were many bearish factors in China’s LPG market, such as the global public heath event and the crash of the international crude oil prices. China is the largest LPG importer and consumer in the world. According to SCI’s statistics, China’s LPG output and import volume in 2019 were 41,000kt and 20,000kt respectively, but there was no authoritative Chinese LPG price as traders mainly adopted FEI and CP as settlement prices during the import trading. However, changes in China’s LPG prices are mainly due to the supply-demand fundamentals and many other factors, and the fixed price covering the whole month will bring exposure risks to related enterprises. Many market participants showed that the launch of LPG futures and options was timely, which provided a powerful risk hedging tool for enterprises to respond to market changes and avoid price fluctuation risks.

Up to the end of March 2020, the refrigerated LPG price dropped by $355/mt, down 62.83% from the beginning of 2020. Moreover, China’s LPG average price declined from RMB 4,821/mt to RMB 2,900/mt, down 39.85% or so. There are three factors influencing China’s LPG prices. The first influencing factor is supply-demand pattern, including output, import volume, operating rate of the deep-processing industry, downstream demand, etc., and the second influencing factor is price, including CP, FEI, MB, prices of related downstream products, etc. Besides, external factors, such as logistics and policies, also affect China’s LPG prices.

As for the pricing mechanism, there are many international prices, but there is no price system reflecting China’s LPG market prices. With the launch of LPG futures and options, China’s enterprises can calculate premiums and discounts based on the differences between local product quality and the quality of delivery goods and use “futures price + premium or discount” to make the offer, realizing the transition from absolute pricing to basis pricing.

The launch of LPG options and futures is of great significance. It can provide risk control measures for China’s LPG producers and importers to control price risks and stabilize production. At the same time, enterprises have an additional sales market. They can choose to sell goods in the spot market or operate in the futures market when the price is favorable, which can ensure profits and control risks.

.......

Please click "Read more" for more information