Thread Content
Approval Granted for Urea Futures on the Zhengzhou Commodity Exchange Author/Source: Sinochem News Network Date: 2019-07-09 Clicks: 67 On July 5, the Zhengzhou Commodity Exchange received approval from the China Securities Regulatory Commission to conduct urea futures trading, with these contracts set to be launched on August 9. The introduction of urea futures helps urea manufacturers avoid market risks and improve the pricing mechanism for fertilizers. Xue Haibin, deputy general manager of Zhongyuan Futures, said that with the launch of urea futures, it will provide relevant businesses such as those in the upstream and downstream sectors as well as storage companies with means and tools to determine prices and mitigate risks, thereby stabilizing their profit levels. On the other hand, an efficient and standardized futures delivery system helps guide the industry to optimize pricing models, improve product quality and warehousing/logistics capabilities, and promote structural adjustments and transformation and upgrading. Furthermore, farmers and agricultural cooperatives can use urea futures to hedge risks, and they can also employ the \"insurance + futures\" approach to lock in planting costs in advance and ensure stable incomes, thereby enhancing the role of the futures market in serving agriculture, rural areas, and farmers. Lu Pan, a senior manager at the Non-Agricultural Products Department of the Zhengzhou Commodity Exchange, said that China is the world’s largest producer and consumer of urea; in 2018, China’s production and consumption of urea accounted for 26.3% and 27.35% of the global total, respectively. Before 2009, urea prices in our country were mainly determined by **guidance prices, with market mechanisms playing a supplementary role. On January 24, 2009, the **National Development and Reform Commission and the Ministry of Finance jointly issued the \"Notice on Reforming the Price Formation Mechanism for Fertilizers,\" initiating efforts to reform this mechanism in a market-oriented manner. Subsequently, preferential policies in areas such as fertilizer transportation, taxation, electricity and gas usage were successively removed, and non-market factors such as import and export regulation also gradually faded away. Currently, domestic urea prices are primarily determined by supply and demand, with a market-based pricing mechanism having been largely established. Since 2009, the price of urea has reached a maximum of 2,419 yuan per ton and a minimum of 1,150 yuan per ton, with an overall fluctuation range of up to 52%; the average annual fluctuation rate was over 20%. Faced with increasing market risks, urea manufacturers have an urgent need to hedge their risks and are hoping that urea futures will be launched as soon as possible. It is understood that the Zhengzhou Commodity Exchange began working on the development and evaluation of urea futures in 2009, conducting a thorough investigation into the basic conditions of the urea spot market to fully assess the necessity and feasibility of introducing urea futures. On this basis, the Zhengzhou Commodity Exchange has formulated contracts and institutional rules that reflect the characteristics of the urea product, aiming to bring various aspects such as delivery methods, the layout of delivery warehouses, and the standard delivery products as close as possible to real-world practices, thereby facilitating participation by relevant parties to the greatest extent possible. A relevant official from the Zhengzhou Commodity Exchange stated that, at the current stage, the urea product meets the basic requirements for conducting futures trading. The preferential and restrictive policies related to the urea industry in our country have been successively abolished; there are no price controls in the urea market, the spot market is highly market-oriented, and competition within the industry is fierce. In addition, urea varieties feature a large available supply in the spot market, sufficient quantities for delivery, a high degree of standardization, easy quality inspection, convenience in storage and transportation, as well as ease in organizing deliveries. “Next, the Zhengzhou Commodity Exchange will seek public opinions and suggestions regarding the rules for urea futures contracts, in order to further improve the relevant regulatory framework, mitigate market risks, and enable urea futures to play a better role in supporting the development of the real economy. ”Lu Pan said that the institute will continue to work on market development to ensure the smooth launch and stable operation of urea futures.