The Chinese futures market is on an upward trajectory, as evidenced by recent data from the China Futures AssociationIn July alone, the trading volume hit 711 million contracts with a transaction value reaching a staggering 52.42 trillion yuanThese figures mark an impressive quarter-on-quarter growth of 23.94% and 16.43% respectively, showcasing the sector's resilience and vitality.

Futures markets are an integral part of a market economy, providing a transparent, fair, and just mechanism for tradingThey serve as a critical benchmark for the pricing of commodities, thereby facilitating optimal resource allocation and ensuring market stabilityThese markets not only reflect economic dynamics but also allow stakeholders to mitigate risks associated with price fluctuations.

During a recent field investigation in Hangzhou, it became apparent that numerous leading businesses across major supply chains in China are embracing futures trading as a means to bolster their operationsCompanies are increasingly utilizing various financial instruments such as hedging and basis trading to circumvent the risks posed by volatile prices, stabilizing their production and operationsThe encouragement offered by futures markets has enabled these enterprises to not only enhance their steady growth but has also injected new vigor into the upgrade and transformation of the entire industry chain.

For instance, on August 14, a visit to Zhejiang Hengyi Polymer Co., Ltd. in the Xiaoshan District of Hangzhou offered a closer look at its state-of-the-art polyester and filament direct-spinning production line, which stands at the forefront of international standardsThe production process showcased how basic raw materials such as PTA (Purified Terephthalic Acid) and ethylene glycol undergo polymerization under high temperature and pressure to emerge as high-quality yarnsThe transformation encapsulated the ingenuity of modern technology and the craftsmanship involved in contemporary industrial manufacturing.

PTA plays a critical role throughout the transformative journey from crude oil to finished garments

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King's Director of Research at Zhejiang Hengyi International Trade Co., Ltd., Wang Guangqian, highlighted that this production line boasts an annual capacity of 100,000 tons for polyester chips and a staggering 500,000 tons for melt direct-spun polyester filamentsEach day, this operation generates up to 570 tons of product, which serves as a valuable raw material for China’s downstream textile and apparel sector, being widely adopted in spinning, precision weaving, and ultimately becoming woven into household textiles and various fashion items.

However, challenges remain in the spot trading of raw materials like PTABusinesses often find it difficult to bear pressure due to significant price fluctuations, which can jeopardize the stability of the supply chainFurthermore, the requirement for lump-sum or substantial payments places a substantial burden on financially weaker enterprises, hindering their growth trajectoryIn addition, risks associated with credit in spot trading continue to loom ominously.

According to Zhang Sixi, the General Manager of Guotai Junan Futures' Zhejiang branch, the history of the PTA industry in China reflects a dramatic evolutionEarly on, swift domestic capacity expansion heralded a “golden age” characterized by rich processing profitsHowever, from 2011 to 2014, intense market competition and an influx of new large installations engendered an oversupply crisis, leading to deteriorating market conditions and shrinking profit marginsThis pivotal shift prompted several PTA manufacturers to reassess the significance of the futures market as a tool for risk management.

“When PTA futures were first listed, the factories had a low ratio of spot purchases and minimal understanding of the markets' functions,” shared Bu Hongfeng, General Manager of Hangzhou Zhongpu Business Consulting CompanyHe noted that the interconnection between PTA spot and futures trading was only about 30% around 2014, increasing to 60% by 2016 and surpassing 95% by 2018. Today, the integration level approaches 100%, as basis trading in PTA has been included in the annual contracts of upstream and downstream enterprises since 2022.

Since the introduction of PTA futures at the Zhengzhou Commodity Exchange in 2006, this financial derivative has evolved into a central tool for leading companies like Yisheng Petrochemical and Hengyi Petrochemical in navigating market volatility and maintaining robust operations

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Currently, Yisheng Petrochemical commands over a quarter of the national PTA production capacity, exceeding 21.90 million tons.

XU Jien, Deputy General Manager of Yisheng Petrochemical's PTA sales center explained the advantages realized since engaging in PTA futures trading. "As PTA constitutes our primary product, when demand contracts and inventory rises, we hedge by selling futures contracts to safeguard against price declinesConversely, if unexpected circumstances arise and our produced PTA falls short amid existing sales contracts, we can buy futures contracts to lock in costs and mitigate losses stemming from market price fluctuations," he elucidated.

In the same vein, in instances where polyester businesses anticipate an increase in PTA prices, they can proactively purchase corresponding futures contracts to shield themselves from escalating raw material costsIn contrast, should market prices diminish, they can liquidate contracts on the futures market to counteract potential spot market losses, thereby effectively dispersing risk across the board.

As a specialist in the textile and apparel sector, Zhang has firsthand experience regarding the rapid advancements within the polyester industry, especially concerning a notable reduction in imported PTA and ethylene glycol, which speaks volumes about domestic production improvements and localization strategiesEnhanced production capacities, significant investments in technical upgrades, product stabilization, and innovation have intensified competition in the industry.

Statistics from the Zhengzhou Commodity Exchange reveal that there are currently 20 domestic PTA manufacturers, 16 of which actively participate in PTA futures trading and collectively represent 94% of total capacity in the countryThis marks a growing recognition among enterprises that reliance solely on traditional business models cannot yield effective risk managementAs Wu Liangjun, Deputy General Manager of the Research Center at Yisheng Petrochemical observed: "The process of entering the futures market is fundamentally about seeking certainty amidst uncertainty."

Futures tools provide enterprises not only with stable price assurances but also with enhanced operational flexibility and competitive advantages, thereby supporting their pursuit of excellence and sustainable development while contributing to the high-quality advancement of the physical economy.

As the futures market continues to evolve, basis trading is increasingly becoming the predominant transaction model within the polyester industry

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