Shanghai Securities News: Bitumen Futures: No Fears about “Futures” in Local Refining Enterprises

Updated on: October 26, 2016

Reported by Song Weiping, Journalist of Shanghai Securities News

The local refining enterprises have a difficult time surviving in Chinese petrochemical industry. They are surviving in the cracks of “CNPC, Sinopec and CNOOC”, but suddenly emerged in the refined oil product consumption market.

Taking the bitumen market as an example, according to the statistics of Baichuan Information, up till the end of 2015, the general capacity of local refining bitumen exceeded 15 million tons, occupying up to 38% of the general capacity proportion of bitumen nationwide, and the general capacity proportion of Sinopec, CNPC and CNOOC nationwide was respectively 25%, 23% and 14%.

While the local refining enterprises are savagely growing, the energy chemical commodity futures market is also fast expanded, so is there any inextricable connection between them? Recently, in the natural rubber and bitumen futures analyst training conference held by Shanghai Futures Exchange (SHFE) in Nanjing, the representatives of local refining enterprises in Shandong told their futures stories to the journalist.

No fears about “futures” in local refining enterprises

“In light of the spot, we vigorously expand the market, and simultaneously cooperate with the futures trading, warrant operation and other futures and spot combined business mode, and the sales volumes of bitumen in the company was increased to about 1.1million tons in 2016 from about 500,000 tons in 2015, and the profit of the company was increased by above RMB 400/tons through merely warrant operation” said by Liu Yong from Shandong to the journalist.

Liu Yong is the Principal for the Futures Hedging Operation Department of Shandong Chambroad Petrochemicals Co., Ltd. (hereinafter referred to as “Chambroad Petrochemicals”). Chambroad Petrochemicals is a large-scale private enterprise taking petrochemical industry as the main business, and it integrates petroleum refining and the follow-up chemical industry, and had obtained the imported crude oil using qualification in 2015, and the available imported crude oil is 3.31 million tons/year.

Since 2009, Chambroad Petrochemicals has started to get involved in the futures business through its overseas subsidiary and conduct the crude oil and fuel oil hedging in Singaporean market. In 2013, the domestic bitumen futures were listed, and Chambroad Petrochemical converted to the domestic futures market, and avoided market risks through hedging.

In the first half year of 2016, Chambroad Petrochemicals made a successful application and became the delivery warehouse of SHFE, and “Haiyun” bitumen had then become the registered brand of SHFE. Liu Yong said that, after this transformation, it can facilitate Chambroad Petrochemicals to link the two market positions through physical delivery, and control market risks.

From the traditional hedging business to the warrant sales, warrant hedging, warrant pledge, warrant repurchasing and other new business modes based on delivery brands and delivery warehouses, Chambroad Petrochemicals has went further and further on the road of applying the futures market to serve the enterprise, and the sales volume and profits of bitumen have realized constant increase in the recent three years. Of which, the selling price of bitumen through the warrant selling mode is about RMB 200/ton higher than the selling price of spot.

At that time, it is exactly the time for the vigorous decrease in the international oil price, so many local refining enterprises select “pricing” mode to lock the oil price, i.e., the selling price of spot=the future price of crude oil + the premium and discount. But if the market judgment is wrong, this mode will bring the situation of “high cost and low selling price”, and erode the profits of refinery plants. Especially for the market in 2014 and 2015, there were many constant bargain-hunting phenomena, causing the failure in earning the due money.

The profit-making mode of Chambroad Petrochemicals has earned the attention of local refining enterprises. “They no longer fear the futures, and this year, lots of refining enterprises have started to successively make plans and construct futures teams” said by Liu Yong.

The lack of futures chain in energy chemical commodities

Along with the petrochemical enterprises represented by local refining enterprises participating in the futures transaction, the bitumen futures market also ushers in fast market expansion.

According to the data of SHFE, in the former three quarters of 2016, the trading amount of petroleum and bitumen was RMB 2.72 trillion, which was increased by 779.8% on a year-on-year basis, occupying 4.34% of the trading amount in the former period, and 2.06% of the national commodity futures market. The trading volume has accumulated to 143 million lots, which is increased by 1133% on a year-on-year basis. The positions are synchronously expanded.

The relevant principals for the Second Department of Commodity in SHFE express that, since the bitumen futures contract is listed, the accumulative delivery volume has reached to 609,000 tons, which can better meet the hedging demand of entity enterprises. Currently, the correlation coefficient for the price of bitumen futures and the spot of Eastern China domestic heavy traffic paving bitumen has exceeded 0.95, and the correlation coefficient with the price of Brent crude oil is 0.8, which can better reflect the changes to the international energy marketization situation, and the exertion of futures function is now gradually showed.

But Liu Yong holds that, in the current energy chemical commodities, the richness of futures varieties is still largely insufficient. “We expect that the supervision layer can perfect the commodity futures of energy chemical industry chain, release the crude oil, gasoline, diesel and other commodity futures as soon as possible, and realize the double locking of raw material end and consumption end.”

According to the newest data of the Information Office of People’s Government of Shanghai Province, up till the end of September, totally 17 local refining enterprises in Shandong conducted the field investigation, and obtained the quota of 58.75 million tons of imported crude oil. Along with the imported crude oil using qualification being opened to private enterprises, the local refining enterprises have fast rose, and become the important force of refined oil product consumption market.

However, among about 60 local refining enterprises in Shandong at present, enterprises that can truly participate in the futures market transaction is less than 10%. “These local refining enterprises will be the important participators of crude oil futures as well as gasoline and diesel futures, so the Chinese energy chemical commodity futures still have a huge market space, said by Liu Yong.