November 27, 2018 / 8:58 AM / 19 days ago

Pulp Friction: Pulp futures pummeled on Shanghai debut

BEIJING (Reuters) - Pulp futures endured a dismal trading debut on the Shanghai Futures Exchange (ShFE) on Tuesday as a combination of weak demand and high inventory levels caused prices to plunge by the maximum permitted 10 percent.

A company logo of Shanghai Futures Exchange is displayed at a booth during LME Week Asia in Hong Kong, China June 14, 2016. REUTERS/Bobby Yip

The contract for the paper-making raw material is China’s 50th commodities futures contract, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said at a launch ceremony in Shanghai that was also attended by Timothy Brown, vice president of the Pulp and Paper Products Council.

The front-month ShFE pulp contract SSPM9, for delivery in June 2019, tumbled from a base price of 5,980 yuan ($861) a ton right from the start and was already down 8 percent by the end of the morning session.

It extended losses in the afternoon, closing down 10 percent at 5,382 yuan a ton.

GRAPHIC: Pulp Friction: Rough debut for China's pulp futures as prices plummet 10% on opening day - tmsnrt.rs/2RmcPEx

Judy Zhu, an analyst with GF Futures in Guangzhou, said the contract’s debut was not helped by high inventory levels, both in China and internationally, and seasonal low-demand for pulp.

“The entire downstream market is not particularly good (and) stocks are all very high, so the demand for pulp in paper mills is greatly reduced,” she said.

New pulp production capacity coming on line, on top of rising inventories, is likely to keep prices under pressure in the long run, Zhu added.

Trading volumes were high on the contract’s debut, with 471,124 lots changing hands. That was more than the lots traded on Tuesday for the ShFE’s most-active copper contract SCFcv1 or the crude oil futures contract ISCcv1 on the subsidiary bourse, the Shanghai International Energy Exchange.

The pulp contract - like other ShFE futures contracts - is not open to international investors.

($1 = 6.9451 yuan)

Reporting by Tom Daly; Editing by Tom Hogue

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