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(Yicai) July 9 -- Pure benzene futures and options contracts have started being traded on China’s Dalian Commodity Exchange, enabling businesses in the aromatics sector to hedge against swings in the price of the key raw material used in the chemicals industry.
Each of the four benzene futures and options contracts closed higher on their debut yesterday. They will enable chemical makers to better manage risk, helping the entire industry handle price fluctuations more effectively, keep production more stable, and ensure profits are shared more evenly across the supply chain, a DCE spokesperson said earlier.
With these contracts now available, Shenghong Petrochemical Industry Group can use crude oil futures to fix its raw material costs and pure benzene futures to lock in product sales prices, helping to nail down stable profits, Marketing General Manager Wang Yifei told Yicai.
Benzene, which is extracted from coal and oil, is an important organic chemical raw material used in the production of synthetic resins, synthetic fibers, and synthetic rubber. These materials are used in everyday products, including clothes, home appliances, tires, and dyes.
“In recent years, benzene prices in China have fluctuated greatly due to changing international crude oil prices, the global economic situation, trade patterns and capacity changes,” according to an analysis by First Futures.
According to industry insiders, before the DCE-traded futures were introduced, China’s benzene spot market relied on three main pricing methods: annual long-term supply contracts based on past average prices, current market pricing, and fixed price spreads tied to styrene prices. Benzene import prices were mainly based on South Korea’s free on board.
International market pricing for benzene has long been dominated by European and US energy and chemical giants, noted Wu Guang, deputy GM of Sinochem Petrochemical Sales. The listing of standardized benzene futures in Dalian will likely form an authoritative price signal that better reflects China's actual supply and demand conditions, he added.
As China accounts for about 38 percent of global benzene consumption, the new futures contracts are expected to greatly enhance the nation’s sway over its international pricing. The hope is that they will help China become Asia’s benzene pricing center, said Chi Shaofei, deputy GM of Northeast PetroChina International, a chemical trader under PetroChina.
Editors: Tang Shihua, Martin Kadiev