Transcript IMS & Platts: an overview

Market Outlook and Price Assessments in
China
Dave Ernsberger
Editorial Director, Asia
Platts
Qingdao, China
July 24, 2004
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Agenda
• Introduction to Platts: present and future
• Platts assessment methodology
• Platts in China
• Physical and Futures Markets – different and often co-dependent
• The prospects for an integrated market in China
• Q&A
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Platts: Part of McGraw-Hill Companies
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McGraw-Hill has more than 280 offices in 40 countries
Sales in 2003 were $4.8-billion
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Platts’ sister companies include:
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Standard & Poor’s
BusinessWeek
McGraw-Hill Education
Many others
Our strategy: build comprehensive information businesses for
both general and industry specific audiences.
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Our mission
• Platts is the world’s most trusted and valued source of global
energy information and intelligence.
• Our goal at Platts is to work with our clients and the industry to
enable global energy markets to function with efficiency,
transparency and integrity.
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Our profile
• Platts is the world’s largest energy information provider.
• Platts provides decision-critical, expert information to the
petroleum, electricity, natural gas, coal, petrochemicals,
metals, nuclear and shipping industries.
• Platts’ provides unique benchmark pricing opinions, realtime news, market and industry analysis, energy
consulting, analytical databases, and geospatial tools.
• Platts’ customers are traders, marketers, planners,
analysts, managers, engineers, consultants, lawyers and
governments.
• Platts information must be bought directly from Platts, or
via our licensed third party distributors, to guarantee
reliability, and to ensure that the information is in fact from
Platts.
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Unique methodology, unique benchmarks
• From 14 offices worldwide, Platts covers the oil, natural gas,
electricity, nuclear power, coal, petrochemical and metals
markets.
• Platts unique, expert assessments are trusted and used as
benchmarks in the world’s commodities markets
• Every day, more than $10-billion of trading activity and term
contract sales is based on Platts' price assessments.
• Platts is the world leader in publishing oil assessments
• Specialist in oil market information since 1923
• Impartial and independent
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Unique methodology, unique benchmarks
• We have built a unique methodology and price assessment
process for the Asian oil markets using many decades of
experience and development
• The assessment process is open, transparent and subject to
public scrutiny
• All of our assessments are proprietary
• As result of this unique methodology and process, our
assessments are trusted, widely-used and valued by the Asian
oil markets
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Platts: price assessment process
• Assessments represent our expert opinion
• An editorial process developed by Platts to uncover market
value of energy commodities
• All information is tested in the Platts “window”—in Asia, this is
Page 190
• We use an interactive process where the market itself is the
testing ground
• We use real-time technology to interact with market
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All bids/offer must be available to market at large
Transactions must be made at arms length
Values are based on ‘market-on-close’ principle
Assessments always reflect transactable values
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Platts: price assessment process (ctnd)
• Assessment process is open and transparent
• Assessments are inclusive of backwardation or contango –
prevents double counting of differentials
• Deals are subject to several tests, including “golden standards”
of repeatability and incrementability
• Key to any price assessment process is transparency and a
reliable methodology
• Our methodologies are open to public scrutiny and comment,
and can be viewed at www.platts.com
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Platts: price assessment process
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Platts in China
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Platts has been marketing its
services in China for more than
20 years
Provides a broad range of
energy, petrochemical and
metals information products and
services
Platts benchmarks are widely
used for price benchmarking in
China oil, petrochemicals,
metals markets
Our customers in China include
integrated oil companies,
petrochemicals companies,
traders, regulators and
government departments
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Platts China Initiative
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Launched Huangpu, Shanghai
and Qingdao fuel oil
assessments this year
Started publishing the Chineselanguage “China Fuel Oil
Report” on July 5
Preparing expansion of Platts
services to China’s LPG,
petrochemicals, electricity,
natural gas, coal, and LNG
markets to serve needs as they
arise
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Platts China Initiative
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Platts expanded commitment to
China by establishing
Guangzhou representative office
in June
Our new representative office
enables us to provide liaison
and product introduction
services
Our plans call for Beijing,
Shanghai representative offices
over next 12 months
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Platts China Initiative
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Platts organizes training courses
in risk management in China
Educates at seminars held by
our partners and other third
parties
Holds regular petrochemicals
and fuel oil market seminars in
major cities
Studying interest in other valueadded Platts services in China
Geospatial services
Consulting
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South China fuel oil assessments
Ship-to-ship Huangpu 180CST 3.5% sulfur
黄埔燃料油过驳价 (至3。5% 含硫 180 CST)
FOB Huangpu 180CST 3.5% sulfur
黄埔燃料油提库价 (至3。5% 含硫 180 CST)
C+F Huangpu 180CST 3.5% sulfur
黄埔燃料油到货价 (至3。5% 含硫 180 CST)
C+F Huangpu 180CST 2.5% sulfur (MSFO)
黄埔直流燃料油到货价 (至2。5% 含硫 180 CST)
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East China fuel oil assessments
FOB Shanghai 180CST 3.5% sulfur
C+F Shanghai 180CST 3.5% sulfur
FOB Shanghai 180CST 1.5% sulfur
C+F Shanghai 180CST 1.5% sulfur
FOB Qingdao 180CST 1.5% sulfur
C+F Qingdao 180CST 1.5% sulfur
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Platts: Chinese assessment window
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Launched July 12
Information in
Chinese and
English
Same
methodology
applied as in
Singapore and
Page 190
Open access for
participants in
physical market
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Price discovery – interactive process
Platts
market reporters
Market activity
Real-time
publication of bids,
offers and deals
Instant feedback
Decision support
Price transparency
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Solid benchmarks = Clear price signals
Platts Huangpu vs MOPS, 180 CST Fuel Oil
($/ mt)
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5/ 12
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5/ 19
5/ 26
6/ 2
6/ 9
FOB Huangpu fell below import
cost—and even FOB
Singapore—for periods in May
China markets sent clear signal
in May that port was congested,
bonded storage full to bursting
Supply corrected itself,
premiums were re-established in
early June
Without clear price signals,
market could have become
critically oversupplied for longer
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China: needs efficient markets
• Efficient markets allow countries to manage economic growth
• Expert assessments send clear price signals about where new
supplies are most needed
• Allow for better planning and targeted infrastructure
development
• Efficient markets are created in trading centers where liquidity,
transparency, stability, and rule of law are reasonably
guaranteed
• Platts’ role is to help energy markets around the world function
with greater efficiency, transparency and integrity
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China: demand growing on all fronts
• Infrastructure under increasing stress from high oil demand
growth
• Overtook Japan as world’s second biggest oil user in 2003
• Oil demand rose by more than 900,000b/d in Q1 2004 to 6.14-mil
b/d; up 18% year-on-year
• Electricity demand rose 16.4% in Q1 2004, almost all grids in
China experienced shortages
• Peak supply-demand gap stretching to 30,000MW in 2004
• Government taking measures to slow down economic growth in
2004; moved to slow down borrowing in late April
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China: needs physical and futures trade
• Physical and Futures markets are different, but usually codependent
• Taken together, physical and financial markets are used around
the world to properly manage price risk
• Used together, they help balance supply and demand in the
short and long term
• To use both markets most efficiently, traders need to minimize
the basis risk between the two (delivery timing, location of
delivery, quality specifications)
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Physical Markets
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Essential for moving
commodities from producers to
consumers – the primordial
marketplace
Trading is relatively unregulated
Usually not traded on an
exchange
Trades typically settled by actual
delivery of products seller to
buyer
Sellers, buyers assume a certain
amount of credit risk
Give financial markets a solid
(and non-circular) reference
point for settlement
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Futures Markets
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Allow buyers and sellers to
hedge price risk
Provide a venue for financial
institutions (banks, funds)
Usually traded on an exchange
Exchanges often assume credit
risk by taking each side of every
trade done
Exchanges often highly
regulated to provide certainty of
rules, protection for investors
and high degree of
standardization
Trades typically settled with
exchange in cash
Settlement often relies on a
benchmark (or basket of
benchmarks) from the physical
markets
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Physical & Futures: codependent
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Efficient commodities markets have coexisting, and codependent
physical and futures trading
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Platts and established exchanges work together around the world to
provide unified hedging and settlement systems
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Transparent physical markets influence futures prices
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Transparent futures markets influence physical prices
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Together, both markets minimize price “distortions” by providing
reliable and immediate signals of changes in market conditions
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Together, both markets are critical to maintaining a supply/demand
balance
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Prospects for an integrated China market
• Prospects are very good, depend mostly on supportive
measures from Beijing
• China’s physical fuel oil markets have thrived since regulations
were relaxed in January
• Platts launched proprietary physical benchmarks for Huangpu in
March
• Launched proprietary benchmarks for Shanghai and Qingdao in
July
• Development work on an exchange-traded futures market
picking up speed
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Only Authorized Platts Distributors in Asia
ComStock
Reuters
Moneyline Telerate
Bloomberg
FAME
OilSpace
GlobalView
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questions?
Dave Ernsberger
Editorial Director, Asia
Platts
(65) 6530 6571
[email protected]
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