(Yicai) June 23 -- Chinese regulators have approved the trading of futures and options contracts for pure benzene, an important chemical raw material, on the Dalian Commodity Exchange to help manage risks in the petrochemical sector, according to a notice issued by the China Securities Regulatory Commission on June 20.

These new financial tools will enable chemical companies to better manage risks, so as to make the entire supply chain more stable and for profits to be distributed more evenly along the industrial chain, a spokesperson for the Dalian bourse said.

"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. Prices have already plunged 31 percent since the beginning of the year to CNY5,375 (USD748) per ton. So there is a strong need for tools to help businesses hedge against these swings.

Benzene, which is extracted from coal and oil, is an important organic chemical raw material used in the production of synthetic resins, synthetic fibres and synthetic rubber. These materials are used in everyday products such as clothes, home appliances, tires and dyes.

China is the world’s biggest producer, consumer and importer of benzene. However, in recent years, capacity adjustments along the industrial chain have not been in sync, and profits have not been flowing smoothly between different players.

Once pure benzene futures and options start being offered, the most direct benefit is that companies can lock in the price of raw materials or finished products in advance to avoid being caught out by sudden price changes, said Wu Guang, deputy general manager of Sinochem Sales. This will improve their price risk management.

And other key chemicals might be following suit. The Zhengzhou Commodity Exchange asked for public feedback on the launch of propylene futures and options on May 30.

Editor: Kim Taylor