China launched trading of liquefied petroleum gas (LPG) futures contracts on the Dalian Commodity Exchange on Monday, and trading of LPG options will debut Tuesday as the country seeks to offer more effective tools for enterprises to hedge risks from drastic price fluctuations.
The benchmark price of the five listed LPG futures contracts, sized at 20 tonnes per lot, was set at 2,600 yuan (about 369 U.S. dollars) per tonne.
Total turnover reached 1.4 billion yuan in the first 25 minutes of trading. The contract for November 2020 is the most active, with prices down 257 yuan per tonne from the benchmark to 2,343 yuan as of 9:25 a.m.
The LPG prices are closely linked to crude oil prices. With the global novel coronavirus outbreak and supply routes in the international oil market, LPG prices have fallen by around 50 percent since March, which disrupted the supply chain and affected business activities.
The launches of LPG futures and options will help enterprises better navigate risks and boost market confidence amid the epidemic, according to Li Zhengqiang, chairman of Dalian Commodity Exchange.
China is currently the world's largest importer and consumer of LPG. In 2019, China's apparent consumption of LPG amounted to 47.06 million tonnes, accounting for 14 percent of global use, while imports stood at 20.68 million tonnes.
Despite the market scale, LPG prices in China remained volatile. From 2015 to 2019, LPG price fluctuations averaged between 50 percent and 90 percent annually, according to Li.
The listings of the derivatives mark the first time for a Chinese commodity exchange to launch futures and options of a particular product at nearly the same time. Previously, listings of options usually lag months or even a year after the debut of the futures contracts.
