China’s planned crude oil futures may be priced in yuan – SHFE

Source: Reuters

The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.
China, which overtook the United States as the world’s top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.
“China is the only country in the world that is a major crude producer, consumer and a big importer. It has all the necessary conditions to establish a successful crude oil futures contract,” Yang Maijun, SHFE chairman, said at an industry conference.
Yang’s presentation slides at the conference stated that the draft proposal is for the contract to be denominated in yuan and use the type of medium sour crude that China most commonly imports.
Industry participants with direct knowledge of the plan have said the contract would be priced in the yuan, otherwise known as the renminbi, and the U.S. dollar. Yang would not say whether yuan pricing was only for Chinese investors.
“The yuan has become more international and more recognised by the financial market,” Chen Bo, Chinese trading firm Unipec’s executive general manager, told Reuters.
“I don’t think it would be unacceptable for the world to use the renminbi for commodities trading.”
The contract pricing will exclude custom tariffs and value-added tax and allow for physical delivery in bonded storage areas, Yang said.
The SHFE is awaiting Beijing’s final approval to launch the contract. That may come soon as the bourse has set up an international energy trading platform in the Shanghai free-trade zone, which is touted as a testing ground for China’s financial reforms, especially on yuan convertability and interest rates.
The SHFE has previously said the contract has support from China’s top economic planner, the National Development and Reform Commission, the State Administration of Foreign Exchange and the China Securities Regulatory Commission.
A successful launch could pave the way for the opening of other Chinese commodities futures to more foreign investment. (Reporting by Judy Hua and Fayen Wong; Editing by Dale Hudson)