March 31, 2020 / 10:44 AM / 3 months ago

China LPG options make Dalian debut, as futures prices hit limit

* LPG futures contract rallies and hits trading limit

* Exchange says timely provision of new hedging tools

* Coronavirus has deeply disrupted oil markets

By Emily Chow

SHANGHAI, March 31 (Reuters) - China began trading liquefied petroleum gas (LPG) options on the Dalian Commodity Exchange on Tuesday, only a day after the debut of an LPG futures contract, as the bourse experiments with simultaneous launches.

Until now, China’s commodities exchanges have listed option contracts on products months or even years after the futures contracts started trading.

The LPG futures contract for November delivery fell 9% on Monday, its first day of trade, but rallied 7% on Tuesday to settle at 2,513 yuan per tonne.

During the session, it hit its trading limit as the global oil price staged a recovery from a deep sell-off triggered by the impact of the coranvirus crisis on demand.

The most-active November 2020 options contract, with call options, or options to buy, had an exercise price of 2,650 yuan ($373.67) per tonne. It closed with a call option at 336.80 yuan per tonne and put option, or right to sell, at 500 yuan per tonne.

“Due to (LPG futures reaching) the daily trading limit, high trading volumes of call options are normal,” said Wang Dongli, a derivatives analyst at Orient Securities in Shanghai.

“I don’t think there is a particularly bearish or bullish direction,” he said, noting put options with a 2,100 yuan exercise price had also attracted hefty volumes.

That contract closed with a call option of 588.40 yuan and a put option of 202 yuan.

The derivatives for LPG, a refined oil product used as a fuel in vehicles and for cooking, are the third type of oil and gas product to be listed in China.

They follow the launch of crude oil futures on the Shanghai International Energy Exchange in March 2018 and fuel oil futures on the Shanghai Futures Exchange in July 2018.

The Dalian exchange has said this week’s listings are timely in providing new hedging tools for LPG companies given the widespread market impact of the coronavirus outbreak.

Oil markets have been particularly hard hit because of a battle for market share between Saudi Arabia and Russia that has increased supply while demand has been destroyed by lockdowns to try to prevent the spread of the new coronavirus.

Refiners have been cutting back activity as storage fills and profit margins shrink, which could eventually boost prices of some refined products such as LPG.

$1 = 7.0919 Chinese yuan renminbi Reporting by Emily Chow; editing by Barbara Lewis

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