On September 26, 2019, styrene futures were officially listed on the DCE. In the past year since its listing, styrene futures have been operating steadily as a whole, with a steady increase in the size of transactions, and active participation in the industry, which submitted an annual "answer sheet" satisfactory to all parties. In one year, the functions of futures price discovery and hedging have been effectively brought into play, deriving a rich variety of trading, pricing and hedging models for entity companies. Futures prices have become an important pricing reference for spot and paper goods in the market. Under the dual pressure of capacity expansion and the new crown pneumonia epidemic, styrene futures provide industrial companies with effective risk aversion tools, and point price trading based on futures prices has gradually become the mainstream of the market.
Since the listing of styrene futures, the spot market has undergone significant changes. The rapid expansion of domestic production capacity, abundant supply, high terminal inventory, superimposed on the new crown pneumonia epidemic and the collapse of refined oil consumption have dragged down the price of pure benzene. The traditional market is facing the dilemma of weakening liquidity and continued market downturn. However, styrene futures have brought "good news" to the industry chain. The function of futures price discovery is effective and maintains a high degree of market activity. In the capacity expansion cycle, upstream and downstream companies still retain room for survival, and midstream trading companies have also found opportunities in ample liquidity. The industry chain companies have "liked" the performance of styrene futures this year.
According to a reporter from the Futures Daily, since its listing, styrene futures have maintained stable and safe operations and the market scale has steadily increased. As of the end of August this year, the trading volume and average daily open interest of styrene futures were 23,776,900 lots and 101,400 lots, respectively, and the trading holding ratio remained at a reasonable level of 1.04. Among them, the average daily trading volume and open interest in the first 8 months of this year increased by 95% and 78% respectively compared with last year; styrene futures legal person customers accounted for 58%, an increase of 20% compared with last year, and the participation of industrial customers has increased significantly.
"The listing of styrene futures coincides with the starting point of the new capacity release cycle. With the commissioning of the Zhejiang Petrochemical and Hengli units at the beginning of this year, the national styrene capacity has increased by 10%, and the supply and demand pattern has gradually changed from last year’s relative tightness. Affected by this, the price of styrene futures has fallen all the way after the listing." Said Shi Hanjian, a researcher at Zheshang Futures.
According to reports, the rapid fermentation during the Spring Festival has made the styrene industry worse. The downstream synthetic resins, terminal home appliances, and the real estate industry have generally postponed the resumption of work. Port inventories have continued to rise, and styrene prices have also continued to fall. 40%.
"After April, with the improvement of the domestic epidemic and the expectation of loose liquidity, commodities have bottomed out, and styrene prices have rebounded following the rise in the cost side. However, the pattern of oversupply of styrene has not yet been reached today. Significantly improved, the price increase of styrene is relatively limited." Shi Hanjian said.
In the opinion of Yan Xin, an analyst at CITIC Futures, the listing of styrene futures as a risk management tool provides an effective solution for upstream and downstream participants in the spot industry chain to avoid falling market prices. "It is very beneficial for upstream production companies and midstream trading companies to sell hedging. It provides these companies with opportunities for risk-free hedging and arbitrage, reducing risks and increasing profitability."
Seeing this, many industrial companies have begun to actively participate in the newly born styrene futures market. “As far as trading companies are concerned, they lock in reasonable processing costs through futures with PS industry customers downstream of styrene, obtain reasonable distribution profits, and form a good interaction between industries, which further enhances the stickiness of the industry chain enterprises.” Sinopec Corp. Said Sun Lu, the company's PS sales manager.
"Over the past year, the trading volume of styrene futures has gradually increased from an initial average of less than 50,000 lots to the current daily average of 120,000 lots, and the futures holdings are currently stable at more than 100,000 lots. The sufficient liquidity of styrene futures is very The demand for risk transfer in the industrial chain has been well borne." Shi Hanjian said.
The reporter learned that in order to effectively play the futures function, DCE has continued to introduce innovative measures on styrene and other products. Among them, in February, DCE launched 10 market makers on styrene and other products. In June, it continued to add 2 market makers. The number of styrene futures market makers increased to 12 to promote the continuous activity of futures contracts. Enterprises participate in futures hedging and basis price. In July, the delivery fee for all futures products was waived, reducing the cost of enterprises participating in hedging.
Since its listing, styrene futures have received extensive attention from all parties in the industry chain, and industry chain companies have gradually recognized the price discovery function of styrene futures. What makes market participants feel more deeply is that some companies that were originally restricted by institutional factors and not sensitive to the market are also actively learning and gradually participating in the futures market.
In the impression of Cui Hailong, manager of the Styrene Department of Nantong Chemical Light Industry Co., Ltd. (hereinafter referred to as Nantong Chemical Light), in the past year, styrene futures participants have been relatively complete in the industry, involving production, trade, and terminals. "Production and terminal participation is mainly based on hedging, mainly considering cost lock-in. The mode of participation of traders is relatively diversified, including basis, hedging, inter-temporal, cross-variety arbitrage, and point pricing."
The characteristics of the main participants of styrene futures are that there are many participants from all walks of life, and industrial chain production enterprises have a certain role and energy in the futures market. As a traditional trader based on physical trade, the starting point for trading companies to participate in the futures market is the hedging and arbitrage demand for physical trade.
“Physical trade is our foundation and strengths. We use futures as an efficient and safe risk management tool to realize transactions that are difficult to carry out in physical trade through futures trading.” Jin Jia, head of styrene trading at Broad Energy, told Reporter of Futures Daily.
As a trader, Nantong Chemical has actively participated in it after the listing of styrene, and currently focuses on hedging. It is understood that shortly after the listing of styrene futures, under the situation of oversupply, the forward curve shows a clear structure of near-low and far-high. Futures with substantial forward premiums provide a better opportunity for futures trading. "Under the structure of this year's forward premium, hedging has not only solved part of the physical sales problem, but also has a stable spread, which is a better hedging tool for enterprises. Since April, we have participated in futures delivery every month and obtained A good effect." Cui Hailong said.
In the opinion of interviewees, before the listing of styrene futures, companies mainly used Huaxi Village electronic disks and swaps to hedge. Since the listing of styrene futures, overall open interest and trading volume have gradually increased. Among the existing models, styrene futures are undoubtedly the most liquid and risk management tool. Futures prices have become an important pricing reference for spot and paper goods in the market. Together with swaps and paper goods, they provide industrial companies with multi-level risk aversion tools.
"After the listing of styrene futures, the quotation mode of spot trading in the market has gradually changed from the previous one-buy price mode to a point price trading mode based on futures prices, which provides excellent industrial hedging, price risk management and basis trading. Wei Zhehai, an analyst at Yongan Futures, said that production companies can lock in forward profits very well, and trading companies have disk protection to reduce their own risks. Most of the futures transactions are done at a point price. Many futures asset management companies have become a new force in the market, injecting good liquidity into the market.
At present, in the styrene market, there has been an effective interaction between paper goods, swaps and futures. "Enterprises can choose to hedge against swaps or futures based on their own conditions and judgments. Many companies themselves participate in the spread of swaps and futures, which provides great help for market liquidity and reasonable pricing. "Wei Zhehai said.
"The various hedging models in the market provide companies with a wealth of tools. Industry participants can flexibly choose tools to hedge production and sales activities of different periods, and companies can again choose tools to adjust when the market changes. Said Du Caifeng, senior energy and chemical analyst at the Orient Securities Derivatives Research Institute.
The increase in trading activity, the improvement of liquidity, and the changes in trading and pricing modes are the most profound feelings of traditional traders in the past year since the listing of styrene futures.
In the course of this year, the market's trading entities have transformed from traditional upstream and downstream into basis trading participants, capital participants and industrial chain participants. The market trading model has changed from spot pricing and fixed price trading to disk pricing and basis trading. "For traditional traders, such changes are both opportunities and challenges. We need to adapt to new situations and new models. Such changes also give traders more room for extension, combining traditional physical trade with capital, structure, and The industrial chain is connected, achieving an effect that could not be achieved by the original physical trade." Jin Jia said frankly.
For example, upstream and downstream factories can lock in long-term processing profits or raw material costs to ensure orderly and efficient production. Traders can use forward transactions to connect with more other futures products to achieve the effect of mutual leverage between industrial chains.
The reporter learned that the listing of styrene futures has better promoted the transparency of the overall market pricing mechanism and strengthened the effectiveness of market pricing. The basis price based on futures has also become one of the mainstream methods for traders. Especially during this year's epidemic, traders used styrene futures price trading to ensure the stable operation of enterprises. BROAD Energy used the basis of the futures price to protect the spot position of the company in the absence of physical liquidity from February to March this year.
“The well-liquid futures platform guarantees that the physical goods that the company cannot really sell have completed the risk transfer in the futures market.” Jin Jia said, not only that, based on the understanding of inventory and fundamentals, the company used the futures platform to complete the effective The continuous anti-hedging position confirmed the company’s understanding of high inventory, weak spot and weak basis. "The futures platform allows such anti-hedging positions to be realized continuously and steadily."
Similarly, in Cui Hailong's view, point-price transactions have become a key part of the daily transactions of enterprises, and have played a role in connecting physical objects and disks in the styrene market. "Flexible hedging is meaningful for terminal purchases. Combining point prices can effectively reduce purchase costs. Traders can also use it in position management."
"In the future, we look forward to more upstream and downstream companies participating in the futures market, so that styrene futures can truly serve and feed back the industry chain. We also look forward to the later period of concentrated domestic production capacity, the futures market can better exert its market functions and increase trading activity. To escort the healthy development of the entire industry." Cui Hailong said.
Source: Chemical Network
