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China Looks To Launch Low-Sulfur Fuel Oil Futures Contract

Shanghai offices

China plans to launch a low-sulfur bunker fuel oil futures contract in a bid to raise its pricing power in the world’s maritime fuel oil market.

The Shanghai Futures Exchange (ShFE) looks to launch the futures contract open to foreign investors and traders by the end of this year, Reuters quoted a statement from the Shanghai Futures Exchange as saying on Thursday.

The shipping industry is preparing for a major disruption of the types of fuels it will be using as early as the beginning of 2020, when stricter regulations for the sulfur content of fuel come into force. According to the new rules by the International Maritime Organization (IMO), only 0.5-percent or lower sulfur fuel oil should be used on ships beginning January 1, 2020, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers.

As the starting date for the new low-sulfur rules approaches, China wants to gain more influence on the pricing of those fuels on the global market and become a key supply center of low-sulfur bunker fuel oil.

“The contract will help expand China’s pricing influence in global bunker fuel oil market and help China to improve its maritime transportation capacity,” Jiang Yan, chairman of the Shanghai Futures Exchange, said in a statement, as carried by Reuters.

Chinese companies are preparing to produce more low-sulfur fuel oil ahead of the 2020 shipping regulation change.

Last month, Sinopec said that it plans to have the capability to produce 10 million tons of low-sulfur marine fuel oil by 2020 and reach 15 million tons by 2023.

The low-sulfur bunker fuel oil futures contract will be China’s second oil futures contract after the crude oil futures contract it launched in March 2018.

More than a year after the launch, China’s yuan-denominated crude oil futures are still seen mainly as a Chinese market for Chinese traders who don’t trade on market fundamentals. The futures contract struggles to become truly international for market participants, while inconsistent trading volumes are not helping international traders to use the Shanghai futures as a financial hedge.  

By Tsvetana Paraskova for Oilprice.com

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