Two commodities exchanges separated by 3,000 miles but linked by the trade in plastics have simultaneously launched polypropylene future contracts.
After signing a memorandum of understanding in 2012 the Dubai Gold and Commodities Exchange (DGCX) and Dalian Commodity Exhange (DCE) launched their contracts on Feb. 28.
The Gulf region produces more than 50 million tons of plastics a year, and a significant percentage is exported to China, the largest consumer of plastics in the world, said Gary Anderson, CEO of DGCX.
"We believe our plastics futures contract will be a key risk management tool for all participants in the plastics supply chain, including producers, traders, convertors and end-users," Anderson said.
The simultaneous launch was a strategic move by the DGCX and the DCE to control risk. "We have timed our contract launch with that of DCE in order to maximize liquidity and provide trading opportunities between the two contracts," Anderson said.
Li Zhengqiang, CEO of DCE, added: "Though China is the largest importer of polypropylene, participants in the market have been exposed to significant price risk for several decades," he said. "We have been working with DGCX to structure a similar plastics contract that helps the plastics industry to hedge their exposure effectively."
The Dubai exchange's PP futures contract is sized at 5 metric tons and quoted in U.S. dollars per metric ton. Warehouses will be located in Jebel Ali and Dubai World Central and the exchange promises that physical delivery will limit price variance between futures and physical markets.