Dec 09, 2021

Intercontinental Exchange to launch ethylene futures

Energy
Technology
trading
ethylene
Dominic Ellis
3 min
ICE's two cash settled ethylene futures contracts target firms needing to manage their exposure to ethylene price risk from the US Gulf Coast to Asia

Intercontinental Exchange plans to launch its first ethylene futures contracts on December 13.

Designed for participants who need to manage their exposure to ethylene price risk from the US Gulf Coast to Asia, the two cash settled futures contracts are based on ethylene price assessments by ICIS. The ICIS CFR NE (northeast) Asia ethylene assessment and the ICIS CFR SE (southeast) Asia ethylene assessment are quoted on a cost and freight (CFR) basis per metric ton of ethylene for delivery.

“These new contracts will provide a direct hedge for the market to manage its ethylene exposure on the water from the Gulf Coast to Asia,” said J.C. Kneale, vice president, North American Gas and Power at ICE. “There is tremendous demand from Asia for these contracts given the role ethylene plays in the plastics and packaging manufacturing industry.”

Ethylene is considered to be amongst the most important and widely used petrochemical components. It is one of the key ingredients to make plastic, PVC, polyethylene, and ethylene glycol used in polyester and antifreeze. Polyethylene is estimated to account for more than half of global ethylene demand and is used to make packaging, trash can liners, as well as coating paper and cardboard.

“With its new ethylene export capacity, the US is now a significant player in the global ethylene market. Our petrochemicals team in North America and Asia is immensely pleased to be working with ICE to provide end-to-end hedging solutions in this space,” said Mark Quiner, Head of Petrochemicals at Marex. “We share ICE’s focus on derivatising petrochemicals in the US as it allows us both to offer our clients international vertical hedging solutions from the well-head all the way to the end of the barrel.”

Ethylene is the starting point for so many consumer and industrial goods that impact our daily lives, added Anne-Sophie Purtell, regional head of sales, Greater Asia at ICIS.

“The decision to launch the futures contracts shows the increased sophistication of the market. ICIS price assessments are referenced throughout the world and represent an industry reference point. We are delighted that ICE’s Asia ethylene futures contracts will be settled on ICIS price assessments.”

The new ethylene contracts will trade alongside ICE’s existing Gulf Coast ethylene contract, the Ethylene, OPIS PCW Mont Belvieu future (ICE: ETH), and the contracts which hedge the feedstocks to make ethylene including the ICE Ethane, OPIS Mt. Belvieu Non-TET future and option contracts (ICE: ETE).

In addition, ICE plans to launch its first Asia Propylene contracts on January 10, which will be the Propylene ICIS CFR NE Asia Future and the Propylene ICIS CFR SE Asia future. Propylene is the raw material to produce polypropylene, a widely produced commodity plastic, with applications in many household items, clothing, and other consumer products.

Additionally, following an index consultation and resulting methodology update, ICE UK Allowance futures (UKA futures) are expected to be added to the ICE Global Carbon Futures Index in January 2022, making it more reflective of global carbon markets.

The index and the new futures contract will allow market participants to access a basket of four of the world’s largest and most liquid carbon futures markets: the ICE European Union Allowances (EUA); the ICE California Carbon Allowances (CCA); the ICE UK Allowances (UKA); and the ICE Regional Greenhouse Gas Initiative CO2 Allowances (RGGI).

CME Group today announced that it will launch two new China portside iron ore futures contracts on January 10, 2022, pending all relevant regulatory reviews.

The first internationally traded derivatives linked to China's portside prices, these new contracts are specifically designed to help market participants manage their risk to the price of iron ore traded at Qingdao Port in China.

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