The China Securities Regulatory Commission has recently approved the Shanghai International Energy Exchange -- a subsidiary of the Shanghai Futures Exchange, to conduct low-sulfur fuel oil futures trading. The contract was officially listed for trading on June 22, 2020. This is the third international variety listed in Shanghai Futures Exchange after crude oil futures and No. 20 rubber futures.
Low-sulfur fuel oil futures will be adopted as a specific domestic variety, adopting the model of "international platform, net price trading, bonded delivery, and RMB valuation" to fully introduce foreign traders to participate. This is also the second international energy futures contract after crude oil futures.
Will enhance the right to speak in the international marine oil market
As early as 2004, fuel oil futures had already landed on the Shanghai Stock Exchange. The delivery grade is RMG 380 marine fuel oil (sulfur content is class I, II) or a marine fuel oil of better quality than the standard, which is commonly known as high sulfur fuel oil in the industry.
As the first futures trading product approved for listing since the cleanup and rectification of the Chinese futures market, fuel oil futures was the only domestic energy futures product at that time, and it was also the entry point for the establishment of China's oil futures market. For this reason, fuel oil futures have gained wide market participation and become an important reference target for domestic and foreign fuel oil spot markets.
Data show that in 2009, the trading volume of fuel oil futures on the Shanghai Futures Exchange was 45.754 million lots. The volume of transactions in the first half of 2009 ranked third among global energy futures and ranked fifth throughout the year.
However, the one-paper policy has changed the operating logic of the market. In 2009, due to the impact of fuel oil consumption tax, the consumption structure of the spot market has undergone tremendous changes. Bonded 380 marine fuel oil has gradually become the industry's main consumer variety. The fuel oil futures market has also entered a downturn. On May 24, 2012, fuel oil futures saw zero transactions for the first time.
In order to comply with the development trend of the industry and fill the gap in the lack of domestic bonded fuel oil pricing mechanism, Shanghai Futures Exchange revised the fuel oil futures contract in 2018 to convert the delivery grade to RMG380 bonded marine fuel oil.
After the contract was revised, the vitality of fuel oil futures reappeared. In 2018, the transaction volume of the bonded 380 fuel oil futures contract on the Shanghai futures exchange ranked the 15th in the global energy futures category and ranked 4th in 2019. The volume in the first four months of this year has jumped to the second place in the world.
At this time, there has been a new change in the policy of the fuel oil spot market -- the global sulfur restriction order is coming. On January 1, 2020, the International Maritime Organization (IMO) Global Ship Fuel Sulphur Restriction Requirements officially came into effect. This will fundamentally improve the port, ocean and global environment, and also bring about tremendous changes to the global marine oil market, prompting the further expansion of the spot market of low-sulfur fuel oil. At the same time, the introduction of the domestic low-sulfur fuel oil export tax rebate policy has successfully opened a new situation in the domestic supply of domestic bonded low-sulfur marine fuel oil.
Professor Kang Wenjin, director of the Securities Research Center of the School of Finance at Shanghai University of Finance and Economics, told reporters at Shanghai Securities News that the upcoming international low-sulfur fuel oil futures prices can reflect the supply and demand of the global spot market in a more timely and direct manner, which is conducive to promote the further development of China's low sulfur fuel oil industry by market mechanism. At the same time, this will also gradually make Shanghai an influential international low-sulfur fuel oil pricing center, further strengthen the global influence and competitiveness of China’s commodity futures market, make China an important energy product in the field of fuel oil and have greater pricing power.
Companies in the industry are actively preparing for battle
The reporter was informed that the upcoming low-sulfur fuel oil futures have a broad market basis. At present, the global annual consumption of marine fuel oil is nearly 300 million tons, mainly concentrated in major ports in Asia, Europe, the Middle East and North America. Among them, the Asia-Pacific market has grown rapidly, with a market share of over 45%, and has become the world's largest marine oil consumption market.
It is reported that in the next step, under the unified deployment of the China Securities Regulatory Commission, Shanghai international energy trading center will continue to do all preparations for listing and follow-up supervision, effectively improve market supervision and risk prevention systems, do market training and publicity work to ensure low sulfur fuel oil futures launched smoothly and operated steadily.
Xu Yifeng, general manager of Shanghai Mid-Term Futures, said that the listing of low-sulfur fuel oil futures will provide another more powerful risk management tool for the bonded marine oil industry. From the perspective of pricing power, since the low-sulfur fuel oil futures are an international variety, international investors will be introduced to participate in the transaction, which will help improve China's pricing power and voice in the international marine oil market.
In order to welcome the launch of this new variety, all parties in relevant industries are actively preparing. Many business people interviewed said that they are very optimistic about the development prospects of low-sulfur fuel oil futures trading.
"Listing of low-sulfur fuel oil futures will provide a good price risk management tool, allowing the company to focus more on production and operation." Qiao Yongxin, deputy general manager of East China Petroleum International Business Co., Ltd. said, "Our company will actively participate in the low-sulfur energy fuel oil futures trading."
Source: Shanghai Futures Exchange