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CFR HuangPu Fuel Oil |
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What is the CFR Huangpu Contract?
The CFR Huangpu contract is a forward agreement based on the standardised 180 centistokes fuel oil specifications ( China grade). In other words, it is a promise to provide or to lift a 20,000 metric tons (+/- 5% at seller’s option) cargo of 180 centistokes fuel oil from Huangpu at some time in a given month.
The South China fuel oil assessments are priced against Dow Jones. The CFR Huangpu bids and offers are quoted for trading at least 15-30 days ahead.
Key Features of the CFR Huangpu Contract
The CFR Huangpu contract comprises the following specifics :
Price : US$ per metric tonne, CFR Huangpu
Time : Given half month (15-30 days ahead)
Quality : 180 centistokes / 3.5 % S fuel oil ( China grade)
Quantity : 20,000 metric tonnes lot size
Location : Delivery into Huangpu, China
Mode of delivery : Ship-to-Ship transfer (with other options)
Trading CFR Huangpu
Trading CFR Huangpu is carried out principal to principal, either direct or more often, via a broker. The main categories of OTC trading in Singapore for CFR Huangpu are:
- Outright
A forward outright deal is based on the same concept of the physical outright deal but in the future period. In this case, the deal will be completed within half month.
- Inter-month Spreads
A spread is a trading technique derived from forward and swaps trading. An inter-month spread is specifically the buying or selling of the differential between standard contract prices of two different periods, for example, the differences in prices between May and June.
Why trade using the CFR Huangpu Contract as opposed to fuel oil Swaps?
There is enormous potential for the CFR Huangpu forward market. Apart from suiting the needs of different players in the market, forward deals give a more reliable hedge than paper swaps which have its inherent basis risks. As a semi-forward contract, the Forward CFR Huangpu market allows for the delivery of the physical commodity. This eliminates the necessity to use paper swaps to hedge and the CFR Huangpu contract is thus a very reliable hedge for the principals who intend to deliver or lift the actual physical commodity.
