The Shanghai Petroleum Exchange (SPEX) expects to introduce trading of physical fuel oil contracts on August 8 after a delay of nearly two years, and has invited bidding on spot trading for fuel oil.

But industry experts said that individual fuel oil traders didn't have the access nor incentive to take part in the trading of fuel oil, whose prices follow closely those of refined oil, which are controlled by the government.

The SPEX, a joint venture of Chinese oil giants CNPC, Sinopec Group, CNOOC, Sinochem and the local Shanghai Jiulian Group, originally planned to begin trading in this commodity in the first half of 2004. But it was put on hold for unexplained reasons.

The consortium have now set the date for the launch of two contracts for trading in 180 CST fuel oil and a third for 380 CST fuel oil, whose prices are considered relatively more market-oriented.

"So far we have seen a warm reaction from fuel suppliers, users and traders from across the country," Ma Aidong, a sub-manager in charge of the membership of the exchange, said yesterday.

But because only spot trading for fuel oil is allowed in the exchange, individual traders are denied access to transactions, she added.

The move reflects China's efforts to set up its own benchmark market price for oil ahead of the eventual lifting of controls on oil prices. In view of China's large consumption of oil, future trading in its oil futures market could have a strong influence on international prices of the commodity.

The Shanghai municipal government has offered a series of incentives entitling traders to tax rebates and other financial preferences on trades completed in the exchange. For instance, traders of new ventures that are registered in the Pudong district will enjoy a first-year waiver on income tax.

In addition, value-added tax (VAT) for those whose trading amounts to less than 30 million yuan (US$3.75 million) per year on the exchange will be 15 percent, two percentage points less than the standard 17 percent VAT rate.

Those whose annual trading totals more than 50 million yuan (US$6.25 million) will receive a 3 percent tax rebate and will pay VAT of 14 percent.

(China Daily June 20, 2006)