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REUTERS
Tokyo: New gasoline and kerosene futures on the Tokyo Commodity Exchange (TOCOM) enjoyed suprisingly large trading volumes in their debut week, but more time is needed before the contracts can start trading more steadily, a senior TOCOM official said last week.
The more popular of the two, the gasoline contract, traded 25,103 100-kilolitre (kl) lots on the first day, and on Friday its volume reached 51,444 lots. Kerosene's volume was overshadowed by gasoline, but still hit the 10,000-lot mark on Thursday.
The hefty volumes were far surpassed TOCOM's expectations of initial 3,000 lots each. Kazunari Hayakawa, a TOCOM director, told Reuters the new futures' popularity was partly because investors were familiar with the products in their daily life. "Considering gasoline and kerosene demand in Japan, I had expected gasoline trading volume would be about double kerosene...but obviously gasoline was by far more popular."
He said kerosene's launch in the summer may have put investors more distant from theheating fuel, although the futures are trading for winter months. On the surface, the TOCOM oil futures had a strong debut as far as trading volume and five-day price rallies are concerned. But market participants blamed TOCOM's too low reference prices set prior to the launch for the continuous limit-up sessions.
TOCOM had used spot market assessments of gasoline and kerosene as of July 2 to set the reference prices of 19,600 yen for gasoline and 18,300 yen for kerosene. Because futures prices do not represent current spot prices, the reference prices were found about 2,000 yen per kl below what industry participants regarded as appropriate.
"We wanted to leave forward price differentials to the market instead of us setting spreads beforehand," Hayakawa said. But because of that, price levels and inter-month spreads became distorted, industry sources said.
Although future supply/demand and prices are difficult to gauge, theoretically kerosene in winter should be more expensive than in warmer months,thus the market would be in contango with the farthest January most expensive, for example.
But investors began trading by selling the most active month of January kerosene and gasoline, following their experiences with previous four new futures launches on Japanese exchanges which all debuted sharply down. "We have tried to explain market fundamentals to investors but I am afraid investors had not understood," Hayakawa said.
Short-covering from those shorted investors and new buying interests shifted from plunging domestic agricultural commodities and precious metals futures resulted in repeated limit-up sessions for kerosene and gasoline, Hayakawa said.
"It would require a month or two before the market begins to trade more normally, while next week may already see a less hectic trading," he said. And by then, oil refiners which have mostly maintained a wait-and-see stance may start trading on TOCOM, he added. "A better picture will be seen when all six trading months are lined up in three months,"Hayakawa said. TOCOM oil futures began trading for only three months of November, December and January, but they will eventually be trading for six consecutive months.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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