Singapore's APEX to launch low-sulfur fuel oil contract ahead of new shipping rules

SINGAPORE (Reuters) - Singapore-based Asia Pacific Exchange (APEX) will launch a low-sulfur fuel oil (LSFO) futures contract on Friday aimed at helping shipping and energy firms manage price fluctuations as stricter global marine fuel rules kick in from 2020, it said.

New International Maritime Organization (IMO) regulations cutting the allowed sulfur content in shipping fuel to 0.5% from 3.5% in a bid to combat air pollution will apply from Jan. 1 next year.

The new contract aims to help the energy and shipping sectors to hedge risk in the relatively new market for 0.5% LSFO delivered marine fuels, or bunkers, the spokesman said.

“Risk management demand for delivered bunker LSFO prices has become more significant due to factors such as the uncertainty in LSFO specifications, and the disconnection between cargo and delivered prices,” said the spokesman.

The cash-settled, U.S. dollar-denominated LSFO futures contract will be for 10 tonnes of fuel oil, and will use the Argus Bunker Index (ABI) Singapore LSFO 0.5% as the settlement price, according to APEX and Argus company websites.

The Argus LSFO 0.5% index represents the price of bunker fuel delivered within 4-12 days of the trade date, for volumes between 500-3,000 tonnes, with viscosity of less than 380-centistoke (cst) and sulfur content below 0.5%.

The LSFO futures contract is APEX’s second fuel oil contract and follows the 380-cst high-sulfur fuel oil (HSFO) contracts it launched in April.

“Since the launch of the HSFO contract, we have been closely monitoring the demand and pain points of the market, and will continuously design new products and improve our services based on market’s feedback,” the spokesman said.

The new contract is expected to help users cope with the change in marine fuel regulation, he added.

Since its launch the APEX 380-cst HSFO contract has seen average daily trading volume of some 23,000 lots, representing 230,000 tonnes of fuel oil, and an average daily open interest of around 3,600 lots, or 36,000 tonnes, the spokesman said.

Reporting by Roslan Khasawneh; Editing by Jan Harvey