Q&A For Overseas Take-Delivery of Low Sulfur Fuel Oil Futures

（以下内容从渤海期货《Q&A For Overseas Take-Delivery of Low Sulfur Fuel Oil Futures》研报附件原文摘录）
　　Answers to Press Questions on the Announcement of the Rules for Overseas Take-Delivery of Low Sulfur Fuel Oil Futures and the First Delivery Group On December 14, 2020, the Shanghai International Energy Exchange (“INE”) issued a set of rules for group delivery and overseas take-delivery of low sulfur fuel oil (LSFO) futures, including the revised Delivery Rules of the Shanghai International Energy Exchange, Group Delivery Management Rules of the Shanghai International Energy Exchange, and Guidelines of the Shanghai International Energy Exchange on Take-Delivery of Low Sulfur Fuel Oil Futures Overseas. INE also announced the first delivery group to provide “domestic delivery + overseas take-delivery” services: PetroChina International Company Limited and its subsidiaries. The media interviewed the relevant INE personnel in charge of this matter concerning group delivery and overseas take-delivery. Q What is group delivery? What is overseas take-delivery? A: Group delivery business refers to that, upon the approval of INE, one or more designated delivery storage facilities, factories or their associated parties may conduct group delivery business such as provision of standard warrants and inter-city take-delivery for a futures commodity through group management, operation, and cooperation. In order to realize the first step of “going global” for the delivery of China’s futures products and to promote the international influence of prices of this market, INE has developed the group delivery rules based on the existing factory delivery rules for trading companies, and attempted to promote the overseas take-delivery (cross-border delivery). Unlike the traditional concept for setting up overseas commodity storage facilities proposed by LME and CME, our overseas take-delivery under the group delivery system of the futures market is feasible with the strong support from major leading companies in China’s petroleum industry. Their domestic and overseas storage facilities will become the delivery factory warehouses and commodity storage facilities. After receiving the standard warrants generated by the factories through trading, investors may take delivery of relevant commodities overseas through certain procedures. Q Why does INE roll out group delivery and overseas take-delivery business? A: At present, the development of China’s bunker industry maintains good momentum, with the annual consumption of bonded bunker fuel oil exceeding 10 million tons. The market share of bunkering companies from places like Zhoushan, Zhejiang Province has been increasing in both domestic and international bunker market, thus China’s oil supplies and bunker industry is playing a more important role in promoting the development of the global shipping industry and facilitating trade integration. Based on the industry’s demand, SHFE and INE launched the group delivery business and rolled out the services of “domestic delivery + overseas take-delivery”. Accordingly, the concrete path for the internationalization of delivery for China’s futures products has been formed, offering a practical measure to implement China’s new development concept and achieve high-quality open-up. As an institutional innovation, “domestic delivery + overseas take-delivery” will help promote the use of China’s futures prices for commodity pricing in the global market, and the related services will benefit the global real economy. INE will take the launch of both services as the starting point, and strive to accumulate and summarize the replicable and promotable experience for internationalization in the delivery of futures products. Also, the same approach will be applied to other international products such as TSR 20 and bonded copper futures if appropriate in the future. In the meantime, INE will continue to select eligible companies to be delivery groups of those futures products in due course. Q What are the similarities and differences between standard warrant delivery, group delivery and factory delivery? A: The group delivery rules are formulated upon the factory delivery rules of trading companies. Both rule systems involve companies with the competency to supply, trade, store and transport spot commodities, so as to provide standard warrants and corresponding take-delivery services to market participants of related futures products. The generation, circulation and subsequent cancellation of the standard warrants under the factory or group delivery rules differ from those in standard warrant delivery, and relevant market participants shall follow corresponding procedures in accordance with the applicable rules. The group delivery rules issued this time serves as the institutional basis for realizing “domestic delivery + overseas take-delivery”. Apart from the differences between factory delivery and standard warrant delivery, it differs in the following aspects. Firstly, any entity involved in the relevant business needs to have group management in place, with a group delivery center to supervise and manage the delivery at all the group’s warehouses, factories and commodity storage facilities. Secondly, the standard warrants generated by the group delivery warehouses or factories can be used for both domestic delivery and overseas take-delivery for overseas investors. Thirdly, under the group delivery business, the premiums or discounts for inter-city take-delivery are agreed in a market-oriented approach. The group delivery center will publish the benchmark premiums or discounts for inter-city take-delivery through the official website of INE, and the market participants holding the factory standard warrants will have to negotiate with the designated representatives of overseas commodity storage facilities to determine the final premiums or discounts. Q What are the procedures for take-delivery overseas under the group delivery business? Which part of the procedures should companies pay special attention to? A: According to the released rules, the procedures for taking delivery of LSFO futures abroad can be summarized as follows: 1. agreeing on premiums or discounts for take-delivery overseas; 2. submitting an application for take-delivery overseas; 3. paying performance guarantee for take-delivery overseas; 4. confirming the application for take-delivery overseas; 5. transferring factory standard warrants; 6. signing overseas sale and purchase contract; 7. take-delivery overseas; 8. acceptance inspection of quality and quantity; 9. verifying documents; 10. paying the remaining balance of the purchase price. Special attention shall be paid to the following part of the procedures. Firstly, according to the benchmark premiums or discounts for overseas take-delivery published by the group delivery center at the official website of INE, a holder of factory standard warrants (buyer) should negotiate with the overseas commodity storage facilities on the premiums or discounts based on its business plans, arrange the take-delivery date properly, and submit the take-delivery application in accordance with the time window specified in applicable rules. Secondly, the seller and buyer should negotiate and confirm the relevant legal provisions of the overseas sale and purchase contract, and clarify the right, responsibility and interest of different parties involved in the overseas take-delivery. Thirdly, there should be clear understanding of the transfer of commodities’ ownership and risk. Unless otherwise prescribed in the overseas purchase contract, the ownership and risk of the commodities (LSFO) will be transferred from the overseas commodity storage facility to the buyer when the commodities pass the connection (flange) between the loading arm on the shore of the loading port and the pipeline of the vessel, with the connection serving as a dividing point. Q Why does INE choose PetroChina International Company Limited and its subsidiaries as the first delivery group? A: According to the Delivery Rules of the Shanghai International Energy Exchange, the Group Delivery Management Rules of the Shanghai International Energy Exchange and other applicable rules, after comprehensive analysis and deliberation, INE approved PetroChina International Company Limited to be the group delivery center of LSFO futures; ZheJiang Free Trade Zone PetroChina Fuel Oil Co. ,Ltd to be the group delivery factory (domestic delivery storage facilities) for LSFO futures; and PetroChina International (Singapore) Pte. Ltd. and PetroChina International (Middle East) Company Limited to be the overseas commodity storage facilities. Since the signing of the MOU on Group Delivery of LSFO Futures in Zhoushan on November 26, 2020, INE and PetroChina have been working together to promote the group delivery business. As one of the leading companies in China’s oil industry, PetroChina has sound internal management, full range of oil products, sophisticated experience in domestic and international trade, and an extensive business network. For a long time, PetroChina and its affiliates have been actively engaged in crude oil futures contracts, LSFO futures contracts and RMG 380 bonded fuel oil contracts operated by INE and SHFE. In terms of asset, creditworthiness, management level, facilities and professionalism of relevant staff, PetroChina International and its subsidiaries can meet the criteria set forth in INE’s rules. The approval of PetroChina International and its subsidiaries as the first delivery group of LSFO futures shows that, on the one hand, the futures market can provide support for industrial companies to further expand their presence in industrial chains at home and abroad, while on the other hand, it also highlights that the industrial companies’ rich experience in trade and well-established storage and transportation capacity outside China can help extend the scope of delivery services for Chinese futures products and allow China to have a greater say on global commodity prices. This cooperation is the result of the deep integration of the financial market and the real economy, and the two sides will work together to ensure the stable and orderly operation of the group delivery business. （本文来自上海国际能源交易中心） 获取每日外盘品种报价、场外期权报价、 每日早盘、每手保证金等精选消息， 请关注渤海期货微信公众号~~ 猛戳下方二维码↓ ↓ ↓ 长按识别二维码关注我们

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