China may launch bitumen futures in June, players lukewarm

28 February 2013 08:14  [Source: ICIS news]

SINGAPORE (ICIS)--China is expected to launch bitumen futures trading in June, but industry players have generally shown little interest as they are unsure if such a derivative is a good hedging instrument, industry sources said on Thursday

Only some futures companies or traders have shown interest, expecting to make profits from speculative trading in the market. 

Many physical traders said they will adopt a wait-and-see stance at the initial stage since they do not have experience in futures operations and financial markets are risky.

“Practical experiences guide us in risk managing,” one trader said.

 Bitumen prices usually rise in the high consumption season and fall during the off-peak season. The fluctuations in 2011-2012 were within yuan (CNY) 500-600/tonne ($80-96/tonne) or 10-13%, ICIS data showed.

Futures trading may bring extra risks if futures and physical prices deviate from each other, said a purchasing manager from an east China-based polymer modified bitumen company.

Moreover, some traders are unsure when to hedge in the futures market and how to determine the hedge ratio, as the trading period of bitumen is relatively long, a source from the tender department of a central China polymer modified bitumen company said.

The futures managing authorities should be aware of possible price manipulations from domestic state-owned bitumen producers, which have strong influence over pricing, some traders said.

Nevertheless, more and more market players will be attracted by bitumen futures trading, a fuel oil futures player said, adding that fuel oil futures were not accepted by physical players initially, but soon won recognition.

Bitumen futures trading require low market entry capitals, as one lot is set at 10 tonnes in the futures contract drafted by the Shanghai Futures Exchange (SHFE). 

The physical market is an open one without any particular governmental restrictions. Bitumen importers can hedge against risks or earn profits from futures trading, an industry source said.

The SHFE has been actively promoting bitumen futures since the start of 2013. In January, it organised several seminars and conferences to brief participants on contract details, transactions as well as delivery points.

A player mainly engaged in fuel oil futures trading said that the SHFE has selected some delivery points in Guangdong and the Yangtze River Delta, where bitumen trading was most active in China. The SHFE has confirmed this, but did not reveal a list of the specific warehouses.

A south China-based refiner has agreed to provide its warehouses as delivery points, according to a bitumen trader. However, sources from the refiner declined to comment. 

The SHFE has been seeking to set up delivery points at two major refiners based in east China, refiner sources said.

($1 = CNY6.23)


By: Alfa Li
020-3762 0271



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