China Puts off Fuel-oil Futures Exchange Till 2003

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Last updated at: (Beijing Time) Monday, October 28, 2002

China Puts off Fuel-oil Futures Exchange Till 2003

The Chinese Government has postponed a plan to resume trading in the highly vaunted fuel-oil futures until the middle of next year in order to wait for better market conditions, sources said.

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The Chinese Government has postponed a plan to resume trading in the highly vaunted fuel-oil futures until the middle of next year in order to wait for better market conditions, sources said.

"The government hopes to launch the futures by June," said a senior official with a State oil trading company via telephone. "They are very cautious about introducing new futures products like oil futures and stock index futures to the market. They are working to create a more stable and healthy market environment before launching new products."

The Shanghai Futures Exchange had hoped the fuel-oil futures-the trading of which was opened in 1993 in Beijing and Shanghai but terminated in 1995 due to a market overhaul-could be resumed in September.

The China Securities Regulatory Commission (CSRC) is still pondering on their proposal submitted in January. The final review should be done by the State Council.

The CSRC is deeply concerned about possible turmoil if futures trading is introduced at a time when the futures market is being affected by rampant speculation, the oil company official said.

To reduce the risk as much as possible, the official said the CSRC is making efforts to discipline the futures market, including the stipulation of more rigid market rules and a purge of rule-breaking trading companies.

Although the government is wary about oil futures, traders said they are yearning to see fuel-oil futures on the market as soon as possible. Futures allow traders to buy and sell contracts that offer a fixed price on a commodity at a given date in the future. The traders said futures trading helps stabilize prices and fend off the risks of price fluctuation.

"Oil futures ensure the transparency and fairness of oil prices in trading and allow companies to offset the impact of oil price fluctuations," said Hong Xiaoping, a manager from the Shanghai Fuel Company. Fuel-oil products, as the most liberalized oil products in terms of marketing and pricing, are ready for futures trading, Hong said.

More significantly, traders said, a resumption of trading in fuel-oil futures could pave the way for such trading in more important oil products like gasoline, diesel and crude oil.

An official from the Shanghai Futures Exchange said they have finished all the preparation work for fuel-oil futures trading.

Yang Jingming, former president of the closed Shanghai Oil Futures Exchange, said it is an inevitable trend for China to have its own such exchange.

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