12 August 2008 08:25 [Source: ICIS news]
By Prema Viswanathan
SINGAPORE (ICIS news)--The Dubai Multi Commodities Centre (DMCC) and the Dubai Gold and Commodities Exchange (DGCX) expect to launch their Middle East and Asia plastics futures contracts in the fourth quarter of 2008, nine months later than originally planned, a DMCC official said on Tuesday.
The fine-tuning of the contracts had been completed and market participants were being educated about the benefits of using them, said James Bernard, associate director of commodities at DMCC, in an interview with ICIS news.
"We wanted to wait until the end of Ramadan and also make sure we had adequate support from the large producers, traders, processors and the financial community so that there is enough liquidity from day one," Bernard said, when asked about the reason for postponing the launch, which had initially been scheduled for January this year.
Ramadan, which falls in September, marks a seasonal lull in polymer trading in the Middle East and to a lesser extent in Asia.
"We now have the support of a large number of companies, all of whom are setting up DMCC companies. We are also holding workshops for traders, brokers, processors, consumers and producers, and over 100 attended the last one," said Bernard.
Around 35 producers had been approved so far, he said. "Some of them are trade members and will trade directly with the exchange from their own account, but we also expect a large number of market participants to avail of the services of the 177 broker members on the exchange (DGCX)," he added.
All the contracts would be physically deliverable on a warehouse basis, "but we don't expect them to remain physical – we would like the contracts to be used as financial instruments to hedge against market volatility," he said.
The DMCC has identified six locations for its warehouses, Bernard said. They comprise Jebel Ali in Dubai, Busan and Gwang Yang in South Korea, Pasir Gudang and Tejung Pelapas in Malaysia, and Singapore.
The only reason why China hadn't been included was that the taxation system with relation to free zones was a bit more complex and differed from other countries. DMCC was in discussions with relevant experts and hoped to report some progress later this year, he said.
The DMCC plans to initially trade polypropylene (PP) and linear low density polyethylene (LLDPE) in the Middle East, southeast Asia and northeast Asia. Low density PE (LDPE) and high density PE (HDPE) would follow. "Later we could enlarge the scope of the contracts to include other polymers, Bernard said.
All the contracts were physically deliverable on an "in-warehouse" basis, "we expect that there may be quite a high percentage of physical deliveries being made for the first few delivery months. However the vast majority of the contracts traded over the first year will be financially settled with a relatively low percentage of physical delivery," he said.
"The contracts are ultimately financial instruments to hedge against market volatility and are not there to try and replace the physical marketplace and the existing relationships between producers and consumers," he added.ICIS chemical intelligence
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