China launched trading of low-sulfur fuel futures Monday at the Shanghai International Energy Exchange (INE), a step toward internationalization of the nation’s futures market.
Trading began with six contracts for monthly deliveries from January to June 2021, with a benchmark price of 2,368 yuan ($335) per ton. The contract LU2101 surged 12 percent at the opening.
As the third international futures contract launched by the Shanghai INE following crude oil futures in 2018 and TSR 20 futures in 2019, low-sulfur fuel futures are also priced in yuan, enhancing global competitiveness of China’s futures market.
Across the entire domestic futures market, low-sulfur fuel futures are the fifth to open to the overseas market after crude oil, iron ore, PTA — a commodity chemical and textile raw material — and TSR 20 futures.
“The launch of the futures, which allow overseas investors, will further boost the Chinese currency’s pricing power given the huge amount in both output and sales of the commodities,” Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times Monday.
“The new futures contracts can also provide price references for upstream and downstream firms by reflecting the supply and demand of the fuel oil spot market,” said Dong.
Low-sulfur oil is an important fuel for maritime transport. The commodity’s output in China in the next two years is expected to account for 30 percent of global consumption, Fu Xiangsheng, vice president of the China Petroleum and Chemical Industry Federation, said Monday.
Although China’s futures got off to a relatively late start, it’s been opening quickly to overseas investors.
Yuan-denominated crude oil futures were the first futures to open to overseas investors in the Chinese mainland when they started trading on March 26, 2018.
Liu Wensheng, deputy director of the ferrous metal department at First Futures, told the Global Times Monday that there is rising demand from international investors to use yuan-denominated futures for hedging risks.
Taking iron ore as an example, Liu said that more big trading firms from overseas are participating in the domestic futures market thanks to robust demand.
China approved JPMorgan’s application to operate the first fully foreign-owned futures business last week. Caps on the foreign ownership of futures companies were scrapped at the beginning of this year.
“The futures market should promote high-level opening-up to the outside world promptly, and should implement multiple opening-up modes such as settlement price authorization and contract plug-ins,” Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said in an address at the launch ceremony Monday. Fang called for the flexible diversification of futures to overseas investors.
China launched 15 new futures and options contracts last year and introduced three more products this year, bringing the total traded on the market to 81, the Futures Daily reported.
Chinese officials ring the bell for the official debut of liquefied petroleum gas (LPG) futures and futures contracts at the Dalian Commodity Exchange in Dalian, Northeast China’s Liaoning Province, on Monday. The futures are the first type of gas energy contracts launched in China’s futures market. Photo: CNSphoto
