The Dubai Gold and Commodities Exchange has announced plans to add four plastics futures contracts to its portfolio - focusing on three regions throughout Asia and the Middle East.
The contracts, which will include polypropylene and low, high and linear low density polyethylene cover north Asia, Southeast Asia and the Middle East, leaving China and Hong Kong out of the picture.
``We started with the Middle East, where we really have deliverable contracts,'' said James Barnard, associate director of commodities for the Dubai Multi Commodities Centre. ``Then, we looked at Asia as a whole and, with advice, decided you need to split Asia into two different pricing regions.''
Each grade of plastic will have a contract covering South Korea, representing northeast Asia; Malaysia and Singapore, representing Southeast Asia; and Dubai, representing the Middle East.
``China is not really viable at the moment because of the tax regime they have over there,'' Barnard said. In China, each time a futures warrant changes hands, the transaction is taxed, he said. Hong Kong wasn't an attractive location, Barnard said, because it has relatively low production and consumption.
The exchange expects the four contracts to be launched by the end of the third financial quarter this year, he said. It is part of a strategy intended to develop derivative contracts in Dubai that stand apart from the large commodities exchanges in the U.S. and London, he said.
``At this stage were using our local knowledge, contacts and research,'' he said.
This is particularly important in the petrochemicals field, where the Middle East contributes largely to the world supply, Barnard said.
``Reports say that the Middle East is responsible for more than 50 percent of the world's output of petrochemicals,'' Barnard said. ``This is an area that needs price transparency.''
A focus on petrochemical and energy contracts naturally led to the development of plastics, an area the exchange hopes to continue building, he said.
``[In northeast Asia] we are starting with South Korea, but it doesn't mean that we're ruling out including other areas at a later stage,'' he said. ``There is some talk of involving Japan in a northeast Asia contract. We're still looking very closely at China and trying to use all of our contacts there to try and develop something very hopeful over the next months and years.''
Delivery of the goods will be handled by a system of preapproved warehousing companies, Barnard said. Warehousing companies include Henry Bath Inc. and Steinbeck Global Logistics. The commodities director is currently touring Asia and the Middle East to speak with firms interested in joining the exchange.
``We're getting a good response,'' Barnard said.
Dubai is part of the United Arab Emirates.