STEERING THE PETROCHEMICAL FORWARD MARKET IN ASIA

As the pioneer of the Asian Forward Market, Ginga offers traders, producers, and end-users with more hedging tools and liquidity in the market.

The petrochemical team was formed in 2001 with the introduction of the benzene forward deal, the first-of-its-kind in Asia. Today, Ginga covers forward and physical deals for Benzene, Toluene, Mixed Xylenes, Para Xylenes, and Styrene Monomer. The petrochemical market is relatively traditional and conservative when compared to the petroleum market.

Not as fully developed, petrochemical trading is centered on outright deals with physical delivery option. As the initiator of this market into Asia, we have contributed significantly to the development of the Asian Petrochemical Forward market, providing market players with additional risk management and liquidity tools.

What are Aromatics?

Aromatics fall under the category of petrochemical, which is an intermediate chemical derived from petroleum, hydrocarbon liquids, or natural gas. Specifically, aromatics are compounds produced by the fractionation of petroleum above 80 degrees centigrade. The most important aromatics are Benzene and Toluene which are used as chemical feedstocks and in gasoline production. Other examples of aromatics include Xylenes, Styrene Monomer, Paraxylene, Orthoxylene, Methanol and MTBE.

Trading Aromatics

Petrochemical products are traded through Over-the-Counter (OTC) in Asia. The 5 main products of aromatics traded OTC are:

• Benzene
  FOB Korea with 3KT lot size for physical. Paper 1-3kt lot, benchmark for FOB Korea or USCP.
  
  
• Toluene
  FOB Korea and CFR China with 2-3KT lot size for physical. Paper 1-2kt lot, benchmark for FOB Korea
  
  
• Mixed Xylenes
  FOB Korea, CFR Taiwan and China with 2-5KT lot size.
  
  
• Para Xylenes
  FOB Korea and CFR Taiwan with 5KT for physical. Paper 1-2kt, benchmark for FOB Korea.
  
  
• Styrene Monomer
  FOB Korea and CFR China with 2-3KT lot size for physical. Paper 1-3kt lot, benchmark for FOB Korea or CFR China.

There are 5 basic categories of trading aromatics OTC:

• Physical
  Trades are done based on physical FOB or CFR delivery mainly in Asian Market. Seller and Buyer make an agreement of quantity, delivery period and term, payment term, specification, origin, and price.
  
  
• Forward
  An agreement between buyer and seller to complete a transaction on a specific commodity at a predetermined time in the future, which is based on the transaction agreed upon.
  
  
• Outright
  A forward outright deal is based on the same concept of the physical outright deal but in the future period.
  
  
• Swaps
  A paper swap is an agreement to settle in cash the difference between the fixed price of the derivative now and the floating price of the said commodity at a future period without any physical delivery. End users, producers and traders can hedge the price risk locking the margin or loss by fixing the floating long-term contract prices to a fixed price.
  
  
• Spread Swaps (Contract for Differences)
  Product Spreads are hedging tools used to lock in the price differentials between the same products but at different months (time spreads) or locations (location spreads); or the price differentials between different commodities which are mainly up and down stream products (product spreads). These spread swaps are accompanied with or without physical delivery.

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