Monday, September 14, 2009

China Tries Oil Derivatives AGAIN

“Black Swan” Chronicles: China Loses Again On Commodity DerivativesSept. 14 09I had mentioned quite a while ago, the attempts of China to become a big player in the field of commodities. I had said then that China had not proved very successful in using trading as a tool to acquire a dominant position on the market.As Caijing reveals this morning, the State-owned companies have been embarking on a dangerous game of hedging on oil derivatives. This has dire consequences:A joint venture of China Ocean Shipping (Group) Co. and China National Petroleum Corp has unrealized losses of billions of yuan from its oil derivatives positions, Caijing has learned.The contracts were entered into by the Singapore unit of China Marine Bunker (PetroChina) Co Ltd, a 50-50 joint-venture, a source close to Cosco told Caijing recently.Another source familiar with the matter said the unrealized losses are worth billions of yuan.The company has not made any disclosures about its hedging positions. The possibility of further massive losses at Chinese firms could be behind recent moves by regulators to push for the renegotiation of state-owned companies’ derivatives contracts.A Cosco group company, China Cosco Holdings Co Ltd (SSE: 601919; HKEX: 01919) reported in September 2008 that it booked 5 billion yuan in unrealized losses from over-the-counter freight forward agreements, which shippers use to lock in freight rates.The State-owned Assets Supervision and Administration Commission, the agency supervising SOEs, started investigating derivatives positions last February. Li Wei, vice director of the agency said in May that of the 28 firms found to have been engaged in such transactions, most had suffered losses.A Caijing report in late August said six state companies, under instructions from SASAC, sent legal notice to international banks of their intent to cancel their overseas derivatives contracts. SASAC then issued an online statement on Sept.7 saying that it supports SOEs seeking to protect their interests via negotiations and legal measures.The six SOEs and their banks have not been identified. Currently no lawsuits have been filed over an SOE derivative contract.Cosco is China’s largest shipping group while CNPC is the largest oil producer in the country.1 yuan = 14 U.S. centsHence the recent decision not to honor commodity contracts passed with foreign banks.As can be seen, China is still being an elephant in the china shop, so to speak, in the matters of commodities. Its trading attitude still smacks of a bully behavior, where failures are thrown overboard with the


  1. wanna think about something totally devastating?

    Someone is HUGELY shorting Gold...what if it is China and they just walked away from the call????????

  2. 8; that thought crossed my dont come out publicly and say "im buying gold" to the whole world before you buy it; that drives the price up; they aint that stupid...most of what their announcements are false flag ops for the western presss