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By Yin Lei

The profit margin in China’s petrochemical industry hit a seven-year high in the first half of 2018, according to a report by the Shanghai Securities News on Thursday.

The picture for the petrochemical industry was positive from January to June. For these six months, petrochemical companies registered a profit margin of 7.56 percent from their primary businesses, up by 1.72 percentage point versus the same period in 2017, said Fu Xiangsheng, vice chairman of the China Petroleum and Chemical Industry Federation, at an industry seminar.

The profit growth mostly derived from energy and raw materials, pointed out an official of the National Bureau of Statistics, warning that if their prices go down, profits will shrink.

Other problems in China’s petrochemical industry were identified at this seminar too, including overcapacity, structural imbalances and resource-related issues. In light of these challenges, experts at this event agreed on the need to further transform and upgrade this industry.

They also believed the futures market offers good hedges against price changes. In this respect, the Dalian Commodity Exchange (DCE), as the world’s largest market for plastic futures, has already developed an effective mechanism for price discovery, serving nearly 1,200 companies that traded such futures contracts in 2017.

Plastic products listed at this exchange currently include linear low-density polyethylene (LLDPE), polyvinyl chloride (PVC) and polypropylene (PP). In 2017, over 40 percent of the physical transactions in these three products were hedged at the DCE, and all of these products saw an over 90 percent correlation between their spot prices and futures prices, said Zhu Lihong, deputy general manager of the DCE.

This exchange also piloted seven over-the-counter options programs and released nine price indexes for petrochemical products in 2017.