Pulp futures listed! Hold up an umbrella for the paper industry



Pricing Chinese demand for pulp

Papermaking is one of the important basic industries in our country, and is closely related to people's better life. In 2017, the production and consumption of paper and paperboard in China ranked first in the world, accounting for about a quarter of the global total.

However, the paper industry is facing fierce competition in global resources, markets and capital, and the green barriers to product trade are becoming more and more obvious. This requires not only technological innovation and equipment transformation, but also fine management and risk management of enterprises.

Fang Xinghai, vice chairman of the CSRC, said at the pulp futures listing ceremony that the establishment of China's pulp futures market is of great significance for objectively reflecting the supply and demand changes in China's and global pulp markets, enhancing the international influence and voice of China's pulp and paper products, guiding the steady and healthy development of the paper industry, and helping the implementation of national forest protection policies and environmental protection policies.

China is already the world's largest consumer of commodity pulp, of which coniferous commodity pulp, which is the subject matter of this pulp futures contract, accounts for about one-third of the world's total consumption, with an average annual consumption of more than 8 million tons. The relevant person in charge of the International Pulp and Paper Products Council (PPPC) said that given the huge consumption of China, China plays a significant role in the world pulp market. It is believed that the pulp futures on the Shanghai Futures Exchange will not be too long before it becomes the price benchmark for the Chinese market and even the Asia-Pacific region.

Xu Chen, deputy general manager of Tian Cheng Investment Co., LTD., said in an interview with the Economic Daily that pulp is the main raw material for the paper industry. China's demand is large, but most of the leading enterprises in pulp production are foreign enterprises, and the growth of market demand is in our country.

From 2004 to 2017, the top five import sources of coniferous pulp in China were Canada, the United States, Chile, Russia and Finland. In 2017, imports from the above five countries accounted for about 93% of the total imports of softwood pulp. But our paper pulp spot market does not have a unified standard, price transparent market. For the European market, FOEX collects and sells the rights to the price index for pulp and paper products, called the FOEX Index, but it only reflects European demand. China's pulp market lacks a centralized, efficient and unified quotation mechanism.

Therefore, the launch of pulp futures, filling the gap, will help the formation of a broadly representative pricing mechanism in China, improve market circulation efficiency, and promote the steady development of spot trade. "One important function of futures is price discovery. In popular terms, it means to set a price for something in the market and then buy or sell it at that price." Xu Chen said that because the futures market is an open and transparent market, with continuous futures prices, the formation of forward prices, for the entity enterprise, the price expectation is clear, and the uncertainty of production and operation is reduced.

For example, if traders have pulp in stock and think that the forward price is satisfied, they can sell it on the futures market, and then order the supplier, effectively solving the problem of how to price the forward transaction. "The spot market pricing against futures is price discovery."

Xu Chen said that in addition to helping enterprises stabilize production, ensure income and improve competitiveness, pulp futures prices have many uses. For example, if there is a clear price for pulp, the annual turnover price of forest land can be estimated as a benchmark price. In the past, people often said that the problem of forest land price is not good to estimate, with pulp futures can be effectively solved.

Price risk management for the paper industry

China's paper industry has become one of the world's most important growth markets. At present, there are more than 6,000 paper and paper products enterprises above designated size in China. However, the external dependence of raw pulp is high, and the price is characterized by sharp fluctuations. Therefore, for producers and processors in the industrial chain, there is a strong demand for enterprise risk management. Especially in the spot market of softwood pulp, the price fluctuates frequently. From 2008 to 2017, the average volatility was 22.9%, and pulp and paper enterprises have strong demand for hedging, and have been calling for risk management of pulp prices.

On the other hand, the spot market of coniferous pulp has a certain scale. In 2017, the total import volume of needle pulp in China was about 8.12 million tons, and the apparent consumption value was more than 48 billion yuan at the current average price of needle pulp 6000 yuan/ton. The size of the spot market means that futures have a wide range of hedging needs and bases. In addition, the market industry chain is long, there are many participants, the proportion of traders is large, sensitive to price fluctuations, and the source countries of coniferous pulp imports are scattered, and the transaction price competition is relatively full. Therefore, pulp futures choose coniferous pulp as the subject of pulp futures contracts, very appropriate.

Since the end of 2013, the Shanghai Futures Exchange established the pulp futures research and development working group, and in 2014 signed a strategic cooperation agreement with the China Paper Association to actively promote the pulp futures research and development and listing work, and finally achieved success. Experts said that due to the trade status of softwood pulp relying on imports, its price is affected by macro factors such as the international market environment and exchange rate changes, and domestic supply and demand changes and product structure adjustment also largely affect the price changes. In this context, the introduction of pulp futures can reduce the procurement risk of the paper industry, cope with price fluctuations, give full play to the price discovery and hedging functions of the futures market, help enterprises optimize resource allocation, improve the efficiency of enterprise capital use, provide a strong guarantee for enterprise business decisions, and help the sustainable development of the industry.

Adopt the delivery standard of "quality standard + brand" double certification

Ten minutes after the opening of pulp futures, the trading volume was more than 60,000 lots. Ma Wensheng, chairman of Xinhu Futures, said in an interview with the Economic Daily that the variety of pulp futures is very good from contract design to market participation, especially the participation of the real industry. He believes that pulp is a mainly imported product, the risk management demand is very large, the future market liquidity will be very good. Xinhu Futures has strengthened investor training and program design among customers in the industrial chain, especially pulp traders. I believe that this product will have space in the future combined business. And because pulp futures are a fundamentally independent product in bulk commodities, it is also a good target for futures asset management, which can be used as a commodity allocation with different fundamentals. "Confidence in pulp futures." 'he said.

Industry experts remind that pulp futures contracts have a significant feature, that is, the use of "quality standard + brand" dual certification as delivery standards. Coniferous pulp for physical delivery shall also meet or exceed the relevant delivery quality requirements and be a designated brand produced by a manufacturer recognized by the Exchange. The exchange certified brands involve 11 brands and 14 factories in 4 countries.

Jia Zhiren, vice president of the China Light Industry Federation, said that the launch of pulp futures is a major positive for China's paper industry. It is hoped that pulp futures will give full play to its function of price discovery, establish a market recognized pulp price, and enhance the right to speak in the international market. Provide enterprises with price risk management tools, enrich the quotation model, lock the price risk; Contribute to the sustainable and stable development of China's paper industry.

Zhao Wei, chairman of the China Paper Association, said in an interview with our reporter that making good use of the futures market is a relatively new idea for the operation of real enterprises, and it is recommended that real enterprises first understand and learn the rules of the futures market, learn to guide and stabilize the production and scale of enterprises through the futures market, and make reasonable use of financial instruments for hedging, so as to operate in compliance and control the risk.