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A New Attempt to Mitigate Market Pulp Business Risk
2021-09-27 09:30chinapaperonline.com
Reports from the Shanghai Futures Exchange (SFE) said a sub-forum under the 18th Shanghai Derivatives Market Forum to explore the integration of futures with spots in paper-grade market pulp business was held in Jinan, upper eastern China's Shandong Province on September 23rd.

At the forum, APP (China), Chenming Paper and a few other mainstream market pulp business companies entered into an agreement of cooperation on integration of futures with spots in market pulp pricing. This is a new attempt to bundle the use of future price of market pulp at the SFE as an important reference basis for long-term contract pricing with flexible use and active promotion of the "future price + premium and discount" trade pricing model to effectively mitigate price fluctuation risk. Participating enterprises generally believe that they must actively explore hedging, carry trade and other futures management methods, so that more and more enterprises begin to use pulp futures prices as the purchase and sale contract price benchmark, and gradually form price management, inventory management and other integrated trading model of futures and cash

From January to August 2021, there were 89.05 million pulp futures transactions at the total value of RMB5.95 trillion done at the SFE, surging 502% by transaction and 785% by value from the same period of 2020. To provide higher quality, more efficient and comprehensive services, SFE is now actively working to include corrugating medium and other grades of paper in the futures listing.

Chairman Zhao Wei of the China Paper Association (CPA) also spoke at the forum. He assured the audience that the country's paper industry was on the right track so far, regardless of the impacts from the pandemic and other uncertainties. In the first seven months of 2021, the cumulative domestic output of virgin pulp was 9.31 million tons, up 15.9% year-on-year, the cumulative output of paper and paperboard was 78.8 million tons, up 15.1% year-on-year, the cumulative output of paper products was 42.3 million tons, up 17.6% year-on-year, and pulp imports were 18.07 million tons, up 5.2% year-on-year.. Mr. Zhao expects that China's paper and board production will reach 140 million metric tons by 2025 and further grow to 170 million metric tons by 2035, allowing annual per capita consumption to 100 kgs. and 120 kgs. in the years. To reach the goals, however, there will be greater demand for raw materials and the contradiction between supply and demand of raw materials will become more prominent. It is necessary to make good use of domestic and foreign resources to ensure the supply of raw materials and paper production, ensure market stability and industrial safety, and promote the healthy and sustainable development of the paper industry.

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