Launching of PP, PVC and LLDPE Options Adds to the Risk Management Tools of the Plastic Chemical Industry
Date:08 July 2020

On July 6, PP, PVC and LLDPE options are listed on the Dalian Commodity Exchange (DCE) simultaneously. This is the first time that DCE lists options of plastic chemicals and also the first time that three options are listed by a futures exchange at the same time. Guests from relevant national authorities, local governments, industry associations, plastic chemical industry, financial sector, media and a wide range of audiences witness the launching event online.

Fang Xinghai, Vice Chairman of the China Securities Regulatory Commission (CSRC), says in his speech that to accelerate the listing of options products is a concrete measure taken by the CSRC to follow through the instructions of the CPC Central Committee and the State Council on accelerating the development of the capital market, so as to ensure stability on six fronts [i.e. employment, the financial sector, foreign trade, foreign investment, domestic investment, and expectations] and security in six areas [i.e. job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments]. The listing of these three chemical options will surely play a positive role in establishing and improving China’s petrochemical derivatives product system, enhancing the risk management capabilities of petrochemical companies, and supporting the healthy and stable development of the petrochemical industry.

He points out that the experience since the beginning of this year once again proves that the futures market is an indispensable part of China’s socialist market economic system. At present, China’s economic and social activities are in fast recovery. However, it is still facing the pressure of economic downturn. The CSRC will resolutely act upon the requirements set forth by the CPC Central Committee and the State Council, follow the principle of “building a framework of rules, minimum intervention in the market, and zero tolerance of financial fraud”, and adhere to regulatory philosophy of “creating policy synergies by respecting the market, the rule of law, professionalism and potential risks”. The CSRC will also step up reform and innovation efforts, continuously improve the quality of market operations and stay committed to promoting the opening up of China’s financial market. Hope the derivatives industry will take the bold initiative to shoulder more social responsibilities, work together with all parties to better serve the real economy and the national strategies, and make greater contributions to China’s endeavor in building a well-off society in an all-round way and achieving the first one of the two centenary goals.

Jin Guowei, Vice Mayor of Dalian, says in his speech that it has been a while since DCE speeds up the innovation in designing petrochemical derivatives. So far, DCE has launched 6 petrochemical futures and 4 options. On top of that, DCE has rolled out a number of business integrating futures and spot markets, such as commodity swaps, basis trading, standard warehouse receipt trading, with its derivatives business covering the entire supply chain of the petrochemical industry featuring oil refining at the upstream, industrial chemicals in the middle stream and synthetic resin in the downstream. DCE has established a product portfolio of futures, options, floor-traded and OTC derivatives, all of which are working in good synergy to drive the high-quality development of the petrochemical industry by providing strong support and services. In addition, DCE’s derivatives system has also played a supporting role in relation to the national petrochemical industry base in Dalian.

He points out that due to the impact of many negative factors since the beginning of this year, the price of chemical raw materials and downstream products have become more volatile. As companies face even grimmer challenges in keeping themselves afloat, it’s more urgent for them to use financial derivatives for risk management. Today, the simultaneous listing of PP, PVC and LLDPE options by DCE will not only help petrochemical companies to improve their risk management capabilities, but also grant DCE a higher standing in the related commodity market system.

Fu Xiangsheng, Vice President of China Petroleum and Chemical Industry Federation, and Zhang Peichao, Deputy Secretary General of China Chlor-Alkali Industry Association, make congratulatory speech through recorded videos. Fu Xiangsheng said that at present, the economic situation is complex at home and abroad. The sudden strike of the COVID-19 and the heightened volatility in oil price have brought huge repercussions and great uncertainties to the development of the petrochemical industry. The market gap caused by the coronavirus pandemic is being gradually closed. According to the market data of the petrochemical industry in May, the main indicators are improving. As a barometer of economic development, the futures market provides reliable insights into the industrial trends to companies in the petrochemical industry, thus assuming a greater importance for the high-quality development of China’s petrochemical industry. It is hoped that relevant companies can deepen their understanding of the futures market, actively and prudently participate in futures trading, and make full, scientific and effective use of futures tools to guide production and operation as well as risk management. Zhang Peichao says that the listing of PVC options will create a synergy with PVC futures, leading to a more comprehensive risk management system. By providing more hedging tools and strategies for companies in the PVC industrial chain, the new options can help meet the customized precision management of corporate risks and better serve the high-quality development of the industry.

Ran Hua, Secretary of the CPC Party Committee and Chairman of the Dalian Commodity Exchange, points out in his speech that the simultaneous launching of the three options by DCE comes at the right time, and is bound to play an active role in maintaining the stable operation of the plastic chemical industry. Moreover, it also demonstrates the resolve and courage of China’s capital market to commit itself to meeting the market demand, strengthening the management of market expectations, and contributing to the development of the real economy.

He adds that DCE will keep in mind the instructions of General Secretary Xi Jinping. With the care and guidance of the CSRC, with the help of China Petroleum and Chemical Industry Federation, China Chlor-Alkali Industry Association and other industry associations, with the support and care of governments in Liaoning Province and Dalian City, and with the active participation of members, industrial companies, financial institutions and other market participants, DCE is making efforts to forge ahead on multiple fronts, including serving the real economy, aligning itself with the international market, paying more attention to the quality of market operation, highlighting product innovation, improving services for industrial companies, and cultivating greater technological competitiveness. In doing so, DCE will take the fast lane of becoming a world-class derivatives exchange featuring connected futures and spot product portfolio, multi-dimensional services, and open access to global traders, so as to leverage the futures market to better serve the high-quality development of China’s economy.

It is known that options, like futures, are important basic derivatives in well-established international markets and play an irreplaceable role in price discovery and risk mitigation for industrial companies. During the critical time when China’s economic and social activities are in fast recovery, yet the commodity prices at home and abroad remain volatile, the simultaneous listing of the three chemical options has been given much credit by related industry associations which have been advocating for the adoption of derivatives tools by industrial companies so that industry and finance can meet halfway and create better synergy.

The launching event is conducted offline and streamed online, drawing wide attention from industrial companies and various market participants. As of noon that day, a total of 522,000 people watch the event online. Luo Hongsheng, Director of the Futures Supervision Department of the CSRC, read the approval document for the products to be launched. Xi Zhiyong, Deputy Secretary of the CPC Party Committee and CEO of DCE presided over the launching event. Chen Shaowang, Deputy Vice secretary of the CPC Party Committee and Mayor of Dalian, along with Ran Hua, rang the opening bell for the launching of PP, PVC and LLDPE options.

Disclaimer: This English translation may be used for reference only. In cases there is any discrepancy between the English version and the original Chinese version, the original Chinese version shall prevail. Dalian Commodity Exchange may change or update this English translation without any prior notice and shall accept no responsibility or liability for damage or loss caused by any error, inaccuracy, misunderstanding, or change with regard to this English translation.

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