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Shanghai Futures Exchange outlines plans to develop LSFO futures, bonded bunker market

SHFE will accelerate integration of futures and spot markets for LSFO by providing more price references such as supply price and ex-tank price for China’s bonded bunker fuel market.

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The following article published by Manifold Times on 30 June was sourced from China’s domestic market through a local correspondent. An online translation service was used in the production of the current editorial piece:

The ‘Fuel Oil/ Low Sulphur Fuel Oil Futures Market Development Report 2022’ recently published by Shanghai Futures Exchange (SHFE) and subsidiary Shanghai International Energy Exchange (INE) shared highlights of Shanghai's fuel oil futures market since its launch in 2004.

The report also included SHFE’s next-phase plans, market operations and progress updates of the country’s fuel oil futures and LSFO futures:

With the strong support and active engagement from market participants, both the fuel oil futures and the LSFO futures markets have shown steady trading activities, smooth clearing, settlement and delivery processes, and increasing overseas participation.

(I) Growing market size and capacity to serve the real economy

In response to the implementation of the global sulphur cap on marine fuels in 2020 and other industry trends, the Shanghai Futures Exchange (SHFE) listed the LSFO futures on the Shanghai International Energy Exchange (INE). Both the regular fuel oil futures market and the LSFO futures market have been running smoothly since the listing, with steadily increasing trading volume and open interest. The 2021 data of the Futures Industry Association (FIA) show that by trading volume, the SHFE fuel oil futures and the INE LSFO futures were respectively the 2nd and the 28th largest energy derivatives in the world.

In 2021, a total of 276.9938 million lots of fuel oil futures were traded, a decrease of 41.95% year-on-year (YoY). Year-end open interest was 493,500 lots, up 11.84% YoY. The monthly volume reached a yearly high of 32,697,200 lots in March and a yearly low of 12,061,700 lots in December. The highest month-end open interest of 493,500 lots was recorded in December and the lowest of 256,500 lots occurred in October.

Screenshot 2022 06 30 at 10.55.31 AM

In 2021, a total of 18.5948 million lots of LSFO futures were traded, an increase of 90.47% YoY. Year-end open interest was 75,700 lots, down 46.14% YoY. The monthly volume reached a yearly high of 1,954,300 lots in November and a yearly low of 1,112,100 lots in February. The highest month-end open interest of 143,700 lots was recorded in January and the lowest of 62,700 lots occurred in October.

Screenshot 2022 06 30 at 10.55.43 AM

(II) Effective price discovery functions and widening international application of product price

Whether it’s between the closing price of the most active fuel oil futures contract and the price of spot 380 CST fuel oil in eastern China, or between the closing price of the most active LSFO futures contract and the price of spot LSFO in eastern China, the correlation coefficient has been close to 0.9 since the listing of the two futures products. This shows that the futures markets can effectively reflect the price changes in the spot market.

Screenshot 2022 06 30 at 10.55.51 AM

On June 21, 2021, SHFE and Zhejiang Mercantile Exchange (ZME) jointly launched the Zhoushan LSFO bonded bunker price, which is calculated from the bunker quotes submitted by the major Zhoushan-based bunker fuel suppliers, which quotes are in turn based on the daily settlement price of the LSFO futures contract as adjusted by premiums and discounts. As of the end of 2021, five bunker fuel suppliers— Sinopec Zhejiang Zhoushan Petroleum, Chimbusco, Zhejiang Free Trade Zone PetroChina Fuel Oil, Zhejiang Seaport International Trading, and Zhejiang Petroleum Fuel Oil Sales—were submitting quotes as bunker fuel sellers on ZME. These suppliers together account for 84% of the regional market, which means their quotes can fully and objectively reflect the price trend of the bunker market and are being closely monitored by the market. 

(III) Improving market structure with active participation of institutional clients 

As of end-2021, institutional clients showed an approximately 20% increase YoY in trading volume and an approximately 15% increase in open interest in the fuel oil futures, and an approximately 20% and 15% increase YoY respectively in the trading volume and open interest in the LSFO futures. 

(IV) Stable physical delivery volume that enables effective hedging functions 

In terms of physical delivery, the total delivery volume of SHFE fuel oil futures in 2021 is 40,935 lots (409,350 mt of fuel oil), with total delivery value of RMB 945 million yuan. The highest delivery volume of 14,389 lots (143,890 mt) was achieved in September and the lowest of 70 lots (700 mt) was recorded in December. For the LSFO futures, the total delivery volume in 2021 is 41,089 lots (410,890 mt of LSFO), with total delivery value of RMB 1.340 billion yuan. The delivery volume peaked at 6,220 lots (62,200 mt) in April and reached its lowest point of 206 lots (2,060 mt) in July.

Screenshot 2022 06 30 at 10.55.59 AM

(V) High-level opening up for high-quality development of the industry 

  1. The first cross-border take-delivery of LSFO futures completed to lead the two-way opening-up of China’s futures market

A new delivery model of “domestic delivery + overseas take-delivery” has been introduced to the LSFO futures, made possible through group factory warehouses. The first overseas take-delivery transaction involved three companies from Singapore: Trafigura Group (Singapore), Freepoint Commodities Singapore, and China-Base Resource Singapore. This is a milestone for China’s futures market in taking delivery activities internationally, which further improves the accessibility of China’s futures products and market connectivity under the Belt and Road Initiative. This new delivery model expanded trading channels for industrial enterprises, improved the efficiency of resource allocation, and allowed for multi-dimensional risk management covering domestic and international markets, futures and physicals, and online and offline tools. It helps the industry develop a more sophisticated pricing mechanism and improve China’s pricing power in the major commodities. 

  1. The first use of RMB price for overseas trades in the bonded bunker fuel industry 

Freepoint Singapore, Chimbusco International Petroleum (Singapore), China Merchants Energy Trading (Singapore), and COFCO International Freight inked bunker supply contracts which reference the prices of INE LSFO futures as the pricing benchmark. This was the first time that China’s fuel oil futures prices served as a pricing benchmark in overseas trades. It has raised the influence of RMB in the global pricing of fuel oil, contributed valuable experience to the high-level opening-up of China’s futures market, and supported China’s new development paradigm under the “Dual Circulation” strategy. 

  1. Helping form low-sulphur bunker fuel quotations to build an integrated futures-physical market for oil and gas in the Yangtze River Delta region 

SHFE and ZME jointly launched the Zhoushan LSFO bonded bunker price, which is calculated from the quotes submitted by bunker fuel suppliers based on the settlement price of the LSFO futures contract. This is the first RMB-denominated quotation mechanism in China based on futures prices, providing a new, proven, and reliable pathway for transmitting the LSFO futures price to the spot suppliers. This quotation mechanism was strengthened in June 2022 with the publication of bid prices, submitted by five international shipping companies, for bunker fuel at anchorages in Zhoushan, thus creating a bid-ask quotation model. 

  1. Futures-physical market integration to promote functional innovations for the futures market 

SHFE and INE began to publish the monthly average settlement prices of the LSFO futures (“mean of settlement”, MOS), to complement the monthly average prices in the spot market of the corresponding product. This futures price information offers enterprises a more relevant price reference for their ongoing production and operating activities, and can better meet their trade pricing and risk management needs.

Conclusion

In 2021, the fuel oil futures market has been running stable overall with the risks well under control. The products have been functioning well, as the futures and spot markets show a high correlation factor and a symbiotic relationship. Major innovations with the fuel oil futures prices were made, greatly contributing to the two-way opening-up of China’s futures market and the creation of an integrated futures-physicals market for gas and oil in the Yangtze River Delta region. 

SHFE’s next-phase plan relates to the following three areas: 

  1. SHFE will continue to improve the operations of the futures market, find new applications for futures prices—such as by promoting their use to domestic refineries, traders, bunker fuel suppliers, and other players within the bonded bunker fuel industry—and expand the breadth and depth of the functions of futures products. 
  2. SHFE will accelerate the integration of the futures and spot markets for LSFO, by providing more price references, such as supply price and ex-tank price, for China’s bonded bunker fuel market; and promote product innovation to introduce more hedging tools, such as LSFO mean of settlement futures contract, that address the pricing needs of the bonded bunker fuel supply industry. 
  3. SHFE will continue to promote the high-level and institutional opening-up of the market, strengthen engagement with international organisations, and vigorously encourage the application of “Shanghai Oil” prices in the international financial market to enhance the global influence of China’s fuel oil futures and boost the high-quality development of the real economy. We look forward to working with all market participants to build a more prosperous market for high and low sulphur fuel oil derivatives.

 

Photo credit: Dimitry Anikin on Unsplash, Shanghai Futures Exchange
Published: 30 June, 2022 

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Biofuel

Ulsan Port aims to become leading bio bunker fuel supply hub in Northeast Asia

UPA’s Director Byeong-gu Kim unveiled comprehensive plans to promote marine biofuel adoption centered on Ulsan Port at 2nd Forum on the Commercialization of Biofuels for Maritime Vessels in Seoul.

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Ulsan Port aims to become leading bio bunker fuel supply hub in Northeast Asia

Ulsan Port Authority (UPA) on Thursday (24 April) said it is looking to position the port as a leading biofuel supply hub in Northeast Asia. 

UPA, Korea’s port operator for energy and petrochemical logistics, emphasised its strategic role in building a stable marine biofuel supply chain aligned with tightening global regulations.

UPA's Director Byeong-gu Kim unveiled comprehensive plans to promote marine biofuel adoption centered on Ulsan Port at a recent biofuel forum in Seoul, highlighting the port's strategic advantages including its world-class petrochemical infrastructure, extensive storage facilities, and specialised handling expertise.

The presentation showcased UPA's commitment to developing the necessary facilities and operational frameworks to become Northeast Asia's “premier biofuel bunkering destination”.

“As IMO environmental regulations intensify, Ulsan Port Authority is strategically positioned to lead the transition to alternative fuels,” stated UPA President Jae-young Byeon. 

“Marine biofuels represent a practical alternative that can be implemented immediately without requiring new vessel construction or retrofitting. UPA will continue to strengthen port-centered biofuel supply networks and create a competitive eco-friendly marine fuel market through our advanced infrastructure and technical expertise.”

Chief Executive of the Korea Maritime Cooperation Center (KMC), Hong Sun-bae, emphasised that “the strategic partnership between the shipping industry and the logistics sector has become more important than ever in this era of climate-friendly economic transition.”

The 2nd Forum on the Commercialisation of Biofuels for Maritime Vessels, hosted by the Ministry of Oceans and Fisheries and co-organized by UPA and KMC, drew around 300 key stakeholders from across the shipping, energy, terminal, shipbuilding, and finance sectors. 

The event underscored the increasing urgency of eco-friendly fuel adoption, following the International Maritime Organization (IMO)'s approval of mid-term greenhouse gas reduction measures.

Expert sessions featured actionable insights and market intelligence from key players in the maritime and energy sectors: 

  •     Key outcomes from the 83rd Marine Environment Protection Committee (MEPC83) by Team Leader Dae-jung Hwang of KMC
  •     Biofuel utilisation and demonstration cases by Manager Dae-sik Seo of HMM
  •     Current usage status and challenges of B100 biofuel by Manager Min-guk Jang of G-Marine Service
  •     Market outlook for marine biofuels by Chief Surveyor Jae-hoon Lim of DNV
  •     Case studies of biofuel applications for marine engines by Team Leader Jae-yup Seo of HD Korea Shipbuilding & Offshore Engineering
  •     Global marine biofuel market trends and bunkering developments by Senior Manager Yul-kyung Hong of Hyundai Fuels

 

Photo credit: Ulsan Port Authority
Published: 25 April, 2025

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Shipping Corridor

SFOC report proposes green methanol-fuelled Korea-Europe shipping corridor

Corridor will run between Pyeongtaek Port—the largest hub for automobile imports and exports in South Korea—and major European ports of Bremerhaven, Antwerp, Zeebrugge, and Southampton.

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SFOC report proposes green methanol-fuelled Korea-Europe green shipping corridor

Korean non-government organisation Solutions for Our Climate (SFOC) on Wednesday (23 April) released a report proposing the establishment of a green methanol-fuelled South Korea-Europe shipping corridor. 

The proposed corridor will run between Pyeongtaek Port—the largest hub for automobile imports and exports in South Korea—and major European ports of Bremerhaven, Antwerp, Zeebrugge, and Southampton, presenting strategic pathways for the decarbonization of the maritime sector.

South Korea has announced its “Greenship-K Program” to accelerate the adoption of eco-friendly vessels and set a national goal to achieve a 100% reduction in greenhouse gas (GHG) emissions from shipping by 2050.

Focusing on a green methanol-fuelled Pure Car and Truck Carrier (PCTC) operation model, the report quantitatively assessed the potential for greenhouse gas reduction along key routes. Notably, the Bremerhaven–Pyeongtaek route alone is estimated to reduce more than 1.4 million tonnes of CO₂ emissions annually, given its high cargo volume.

The report proposed the adoption of green methanol as the primary fuel for the corridor, with a long-term goal to transition toward e-methanol. This shift is expected to reduce CO₂ emissions by more than 70% compared to conventional fossil fuel use.

Beyond fuel switching, the report emphasised the importance of securing a stable green fuel supply chain, establishing supportive legal and institutional frameworks, and fostering close public-private cooperation among shipping companies, cargo owners, port operators, and fuel suppliers to make the corridor a viable reality.

“With these foundational elements in place, Pyeongtaek Port is well positioned to become the starting point of Korea’s transition toward a decarbonised maritime sector,” SFOC said. 

Note: The full report by SFOC can be viewed here and it is also available in Korean here.  

 

Photo credit: Solutions for Our Climate
Published: 25 April, 2025

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Biofuel

MASH Makes powers first vessel trial with bio bunker fuel from carbon-negative process

NORDEN and MASH Make completed the world’s first commercial vessel trial using B20 blend produced from a carbon-negative process; vessel operated on a roundtrip voyage from Singapore to Brazil.

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MASH Makes powers first vessel trial with bio bunker fuel from carbon-negative process

Global shipping company DS NORDEN and renewable energy company MASH Makes on Thursday (21 April) successfully completed the world’s first commercial vessel trial using biofuel produced from a carbon-negative process. 

The vessel operated on a roundtrip voyage from Singapore to Brazil, successfully using 65 tonnes of fuel blend with 20% MASH Makes biofuel in its auxiliary engine.

“This trial proves that MASH Makes’ biofuel is suitable for marine engines, and it marks an important milestone towards bringing the fuel into our operation,” said Henrik Røjel, Head of Decarbonisation and Climate Solutions, NORDEN.

The trial demonstrated that MASH Makes’ biofuel is technically a drop-in fuel, compatible with existing systems and capable of reducing reliance on fossil fuels in specific marine applications. 

The results point to a practical path for shipowners to cut emissions without waiting for new infrastructure.

If the new agreement by the International Maritime Organization (IMO) to cap and price excess emissions globally is ratified in October 2025, MASH Makes offers a solution that enables shipowners to start significantly reducing their emissions well before the agreement takes effect in 2028.

“Our biofuel meets the technical requirements of the shipping industry and can be used in unmodified engines. It’s a seamless, scalable alternative ready to cut emissions today,” said MASH Makes CEO Jakob Bejbro Andersen.

Unlike emerging fuels like green hydrogen or ammonia, which require new infrastructure, MASH Makes biofuel integrates directly with existing systems.

NORDEN acquired a minority stake in MASH Makes in 2023 to strengthen its future supply of renewable fuels. Since the acquisition, the two companies have worked closely together to validate the biofuel for marine usage. 

 

Photo credit: DS NORDEN
Published: 25 April, 2025

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