Trading in oil futures reopened on Wednesday at the Shanghai
Futures Exchange, which set a benchmark price of 2,098 yuan
(US$253.40) per ton for the seven contracts traded.
In China, the world's second-largest oil consumer and
third-largest importer, oil futures have been a much-anticipated
way to hedge risks.
China
Securities Regulatory Commission Chairman Shang Fulin said the
nation should speed up the establishment of an oil risk hedging
mechanism, with fuel oil futures being just the start.
Fuel oil is the first futures product approved by the authority
since 1994, when regulators essentially shut down the
over-speculated futures market.
Experts point out that fuel oil is the most liberalized oil
product, which makes it first to hit the board.
Shang said, "Fuel oil futures provide enterprises a platform to
grasp the pricing information in the market while hedging
risks."
He added that the experience gained in futures will help to
create a more complete oil market mechanism.
China
consumed around 43 million tons of fuel oil last year, mainly in
the power generation, transportation and industrial manufacturing
sectors. About half was imported.
Fuel oil production has declined sharply. Domestic output
dropped 38.7 percent from 1990 to 2003, when it hit 20 million
tons. In the same period, imports skyrocketed by a factor of 36
times, from 650,000 tons in 1990 to 23.8 million tons last year.
About 80 percent of imports come from neighboring countries,
including South Korea, Singapore and Russia.
Without fuel oil futures, domestic users can do little to hedge
price volatility risks. The absence of a futures market also puts
China at a disadvantage in terms of pricing.
Despite all the anticipation, the regulator and the exchange are
taking a cautious approach to the new derivatives. Shang said that
China's futures market is still in its infancy, and that it has a
great deal of growing and changing to do.
"It takes a lot of cultivation and effort to bring a product to
maturity after its launch. We need to understand this and prepare
for potential problems," he said at the launching ceremony for the
new product. He noted that stringent risk control is critical to
the process.
Traders should have 8 percent reserves, higher than the normal 5
percent set for copper and aluminum. The fluctuation is set within
5 percent.
Meanwhile, investors are likely to climb a fairly steep learning
curve.
"Many power plants and other oil consumers are interested in
fuel oil futures," said Wang Jianguo, general manager of Tongbao
Futures Brokerage. "But they are not clear about how to use the
derivatives to hedge risks."
(
China Daily August 26, 2004)