China's pulp futures active in trading debut

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01:48

China's pulp futures were traded actively in their debut on the Shanghai Futures Exchange on Tuesday, with a trading volume of over 230,000.

The paper pulp futures closed at 5,382 yuan per tonne, about 600 yuan lower from their base price. The six listings were for wrapping, household and writing paper.

Despite prices being down by 10 percent, government officials and domestic paper manufacturers largely agreed that the contracts would do well in the long term.

Analysts say China's paper-making companies need this kind of financial product to cushion against risks, as the price of the raw material - pulp - fluctuates a lot.

"For example, the price of paper pulp in Chinese market jumped from 5,100 yuan to almost 7,600 yuan per ton in the second half of last year. That's a 48 percent surge in five months," said Yao Guang, board member of Shanghai Futures Exchange.

"The pulp futures could help the entire paper-making industry hedge against risks in terms of price changes," said Li Xiaoliang, board chairman of Shangdong Huatai Paper.

China is a large paper market. It produced and consumed 110 million tonnes of paper last year. However, the industry relies on imports for most of its raw materials.

"Our pulp futures reflect the supply and demand changes in the paper market both in China and globally. They will further bring domestic paper products onto the global market," said Fang Xinghai, vice chairman of China Securities Regulatory Commission.

The current price applies to contracts for June 2019, which is the first delivery month, and the five subsequent months to November, according to a statement from the Shanghai stock exchange.

Analysts say the slip on Tuesday resulted from a combination of weak demand and high inventory. But they expect that, in the longer term, the futures will help advance China's paper sector.