China’s new low-sulphur fuel oil contract jumps 13% in debut

China’s new low-sulphur fuel oil (LSFO) futures contract surged in its debut on Monday, rising as much as 13% on the Shanghai International Energy Exchange.

The January contract was last up 10.5% at 2,617 yuan ($369.82) per tonne, versus a listing price of 2,368 yuan per tonne.

The launch of the contract with sulphur content lower than 0.5% comes after an International Maritime Organization (IMO) ruling which bans ships from using high sulphur content fuel oil this year unless equipped with exhaust scrubbers.

The contract could help boost China’s ambition to build a regional bunkering hub in its eastern Zhoushan port to vie for the multi-billion dollar ship fuel market dominated by Singapore.

Prices for the LSFO contract jumped in its debut trade as the market felt its listing price, set by the Shanghai exchange, was undervalued and came below Zhoushan’s spot prices and Singapore’s 0.5% marine fuel prices, said Jin Xiao, chief analyst for energy and petrochemicals at Orient Futures research unit.

“Considering that the long-term curve of Singapore’s low-sulphur is in a contango structure, we think it is more reasonable for LSFO prices to have a premium to Zhoushan spot prices,” he said. Contango is a situation where the futures price of a commodity is higher than the spot price.

Open to international investors, the LSFO contract is China’s fifth internationalized one following the opening up of crude oil, TSR 20 rubber, iron ore and purified terephthalic acid futures to foreign participants.

“LSFO prices will see limited declines mainly due to the fact that the most serious impacts of the coronavirus epidemic on the economy has ended, demand will gradually recover,” Jin added.
Source: Reuters (Reporting by Muyu Xu in Beijing and Emily Chow in Shanghai; Editing by Tom Hogue and Amy Caren Daniel)

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