China to launch 0.5% LSFO bunker fuel futures contract on June 22
29th May 2020 20:38 GMT

The Shanghai International Energy Exchange (INE) will launch its its low sulfur fuel oil bonded bunker futures contract on June 22, becoming the country's second energy futures contract to be open to international investors, the China Securities Regulatory Commission said Friday.

With China potentially set to become a key supplier of bunker fuel under the new International Maritime Organization sulfur specifications that came in to force at the start of this year, the contract is expected to offer a tool for both domestic and overseas players to hedge risk for physical LSFO trading.

China’s role in regional LSFO supply and demand feeds trading interest for derivatives. China is one of the world’s largest bunker fuel consumers and operates one of the largest shipping fleets.

As the country has allowed domestic producers to supply tax-free fuel oil for bonded bunkering at Chinese ports since February this year, more players have become involved in the supply value chain, boosting the demand for risk hedges, market sources said.

The contract will be priced in Chinese yuan based on tax-free 0.5% sulfur bunker fuel oil for physical delivery at INE's bonded storage facilities, with viscosity set between 100 CST to 380 CST, according to a document released by INE for a public consultation that ended on Friday.

The new LSFO bunker contract will trade alongside Shanghai Futures Exchange's existing high sulfur fuel oil contract priced against tax-free 380 CST with 3.5% sulfur content for bonded storage delivery. SHFE is INE's parent company.

The HSFO contract was launched on July 16, 2018. The exchange had ceased trading of the post-tax 180 CST fuel oil contract for domestic delivery on June 27, 2018. Both HSFO contracts were priced in Chinese yuan and have been accessible only to domestic investors.

S&P Global Platts' assessment showed that the spread between 380 CST HSFO and Marine Fuel 0.5%S narrowed to $66.45/mt on Thursday from $322.06/mt on December 31, 2019.

The LSFO contract was initially targeted to be launched by the end of 2019, ahead of the implementation of the International Maritime Organization's new sulfur limit, then delayed to the first half of 2020.

SHFE hosts some of China's most liquid commodity derivatives, such as rebar and nickel futures, and has been trying to tap into international market opportunities like the crude oil futures contract through INE.

The crude oil contract was China's first energy contract that allowed international investors to trade. It was launched on March 26, 2018.

Bunkerworld .,
29th May 2020 20:38 GMT