Forget about platts and look at Shanghai International Energy Exchange now ?
One of hottest news in Asia past few months is China start trading their own Low sulfur fuel oil in Shanghai energy exchange. Many report claim that it could further strength the position of China in LSFO market . China is definitely one of major player nowadays but probably not because of the fuel oil market.
Similar to crude oil , if I said China is one of major player now I bet no one will disagree. Yet the trading volume of crude oil contract in China domestic exchange is minimal . They are major player because their involvement in other well-established market and their huge demand in physical market.
What are the problems of looking at a new trading market of fuel oil ?
1. Lack of liquidity
Most player are trading in major market and there will be few local players do the trade in domestic market,that bring the problem of price is easily manipulated because of small numbers of players and volume.
2. Lack of creditably
Instead of doing a platts formula , will you accept a “Shanghai energy exchange “ base formula for your volume in next 6 months ? It’s much harder to justify to the shareholders when 99% of your competitor is using the universal acknowledged benchmark of platts.
It will be a good step for China to get further development on the domestic commodities exchange yet at the meantime, their figures could be for reference only.
