Mainland anticipates more independent future with new exchange | SCMP

Trading in oil futures resumes in Shanghai on Wednesday after a nine-year halt - with the first contracts in fuel oils and trading of crude expected to follow - and the market aims to be a competitor with Singapore in setting prices for Asia.

After years of high growth and stagnant domestic production, China has become the world's third-biggest importer of crude oil, after the United States and Japan, and Asia's biggest importer of fuel oils, but has almost no voice in how the world sets the prices for these commodities.

Trading of fuel oil contracts, which will be conducted at the Shanghai Futures Exchange (SFE), is the first step to changing that.......

The exchange has booked five terminals, with a storage capacity of 38,000 cubic metres, in Guangdong province to store fuel oil for future delivery. It will list fuel oil futures contracts for the first eight months of next year, except February, when trading stops for two weeks for the Lunar New Year.

The lowest trading deposit will be set at 8 per cent of the total value of the contract. About 200 members of the exchange - mainly futures trading firms, import and export firms and large petrochemical companies - will be allowed to trade the futures.......

Luo Xufeng, general manager of Zhejiang Nanhua Futures Trading,....... said that Shanghai would compete with Singapore and, over time, become a serious rival. "In future, Shanghai will offer trading in crude futures."

An official of one fuel oils importer who declined to be identified said that China accounted for 2 per cent of global trade in these commodities but had no say at all in how the global prices were set. "The aim of this market is to play a part in setting prices and move the Asian centre from Singapore to Shanghai. This will avoid the risk of fluctuations in the world market affecting Chinese firms and give them tools to protect themselves."

This is the first futures contract to be offered since the government banned derivatives trading in 1995.

China began futures oil trading in 1993 but closed it down two years later because of persistent trading irregularities and fears that heavy speculation on the futures market would drive up spot prices.......

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