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Tue 26 May 2009, 09:41 GMT

H2 launch for Singapore bunker contract


Singapore Exchange expected to launch 380-cst futures contract during the second half of 2009.

The Singapore Exchange (SGX) is due to launch a futures contract for bunker fuel during the second half of 2009, the Minister for Trade and Industry said on Tuesday.

Speaking at a traders' summit, Lim Hng Kiang said the new contract would boost Singapore's role as a pivotal location for oil trading.

"This will further develop the fledgling commodities derivatives sector in Singapore and strengthen our commodities trading hub status," Lim said.

According to market sources, a contract for 380-centistoke (cst) fuel oil in the port of Singapore would be launched first with the possibility of SGX also developing a 180-cst contract depending on how the market responds.

380-cst product would reportedly be traded on a free-on-board (FOB) basis, which would enable cargoes to be loaded from any shore-based terminal in Singapore.

Singapore is the world's leading bunker port by volume with between 2.6 and 3.1 million tonnes sold on a monthly basis. Overall fuel oil volumes transacted average around 5 million tonnes per month.

When launched, the SGX 380-cst contract will follow in the footsteps of a number of similar fuel oil futures contracts developed previously, but which have achieved limited success.

In 1989, the then Singapore International Monetary Exchange (SIMEX) launched Asia's first fuel oil futures contract, which was withdrawn from the market in the mid-1990s due to poor liquidity and investor interest.

The New York Mercantile Exchange (NYMEX) currently operates a Singapore 380-cst contract sold in 100 metric tonne lots. The contract has failed to live up to its early hype since it was launched three years ago.

The International Maritime Exchange (IMAREX), an Oslo-based exchange for trading of maritime-related derivative contracts, offers Singapore 380-cst FOB and Singapore 180-cst FOB contracts in lots of 1,000 metric tonnes per month, 3,000 tonnes per quarter and 12,000 tonnes per year.

IMAREX also provides three other bunker-related contracts: Fuel Oil 3.5% FOB Barges Rotterdam, Fuel Oil 1% FOB Cargoes NWE and Fuel Oil US Gulf Coast No.6 3.0% Sulphur FOB.

In October 2006, another exchange, the Dubai Gold and Commodities Exchange (DGCX), launched its own Fujairah fuel oil futures contract for high sulphur 380-cst fuel oil (4.5% sulphur) in 100-tonne lots.

Meanwhile, the Shanghai Futures Exchange (SHFE) operates a 180-cst fuel oil contract for lots of 10 metric tonnes. According to data from its website, SHFE sees average trading volumes of around 10-15 million lots per month.

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