Did you invest in your plant taking the energy cost here? And now you are paying this !!!!!!

Energy Prices:

Will remain volatile Are beyond your control So how do you Meet budgets/targets Even out cash flows Eliminate price exposure Control Costs, Protect Margins, Enhance Revenues… NCDEX Furnace Oil Futures Contracts offers you such a tool

How to Fix Your Prices ( Hedging through NCDEX Furnace Oil Futures)

Spot Price(Jan'06) : Rs 15800 per MT Mar 06' Futures price at NCDEX: Rs 16200 per MT Buy March'06 FO Futures : Rs 16200 per MT Scenario 1 - Actual Price in Mar 17000 per MT Sell Futures on NCDEX at Rs. 17000 Gain of Rs. 800 per MT Buy Physical product at Rs. 17000 Effective Price Rs 16200 Scenario 2 - Actual Price in Mar Rs 15500 Sell Futures at NCDEX at Rs 16200 Loss of Rs 700 per MT Buy Physicals at Rs 15500 Effective Price Rs 16200

Furnace Oil (FO) is a dark viscous residual fuel obtained by blending mainly heavier components from crude distillation unit, short residue and clarified oil from fluidized catalytic cracker unit. Bunker Fuel, Fuel Oil are other names for the same product.

In India Furnace Oil is the third largest cut of the crude barrel after High Speed Diesel (HSD) and Superior Kerosene Oil (SKO). But unlike HSD and SKO its prices are not administered by the Government. The product is freely importable.

The pricing of other heavy distillates such as Low Sulphur Heavy Stock (LSHS)/Residual Fuel Oil (RFO) are also based on Furnace Oil Pricing.

Internationally Furnace Oil is known as Fuel Oil and is traded in many varieties based on its specifications of viscosity and sulphur percentage. Majority of Fuel Oil is traded in two varieties 180 Cst and 380 Cst (Cst-Centistrokes, gives the measure of viscosity of the product). World Furnace Oil production (residue/distillate) in 2004/05 is forecasted at around 2500 Million Metric Tons.

Exchange traded contracts in Fuel Oil are traded actively in the Shanghai Futures Exchange and OTC contracts are also very popular with Singapore being the hub.

Prices of Furnace Oil were under the ambit of Administered Price mechanism (APM) till 1998 after which the Oil companies were given the permission to price Furnace Oil and other heavy ends such as LSHS, RFO and Bitumen on import parity basis. As a result a lot of private importers have begun to source Furnace Oil from international markets.

The production and sales trend of Furnace Oil/LSHS/RFO in India are given below:

Furnace Oil today is largest traded non APM petroleum product in India with small to medium size traders in almost every town in the country. A large quantity of furnace oil is imported into India while oil refining/marketing companies export substantial quantity of Furnace Oil because they are not able to sell it in the domestic market.

The trend for balance of trade in Furnace Oil is given below:

The value of the trade balance for FO/LSHS is given in the table below:

Furnace Oil and LSHS find use in variety of industries as fuel and feedstock. The consumption pattern is given below:

The Furnace Oil market in India is growing at the rate of approximately 10% per annum.

Value Chain

NCDEX Furnace Oil Futures Contract Specifications

Exhibit 1 - Quality Specification for NCDEX Furnace Oil Futures Contracts

Furnace Oil Characteristics

Key industrial fuel. Almost every manufacturer uses it. Highly volatile. Daily average volatility 3-4%. Huge Market size - Rs 15000 crores per annum Large no. of traders, resellers, consumers and importers Costing of Furnace Oil by oil companies is as follows: Price assessments given by Platts/Argus on daily basis. Plus Freight from Fujairah (UAE) to Mumbai Import Duty (at present at 10%)

Key Indicators

Price assessments given by Platts/Argus on daily basis Crude Oil prices Imports of Fuel oil into China Global Freight Rates Refinery shutdowns in India

Who Can Use It

All industries who have energy price risk Traders/resellers in the petroleum business Importers/ Exporters of petroleum products

NCDEX Furnace Oil Futures Contracts is a deliverable contract with deliveries available from depots of Bharat Petroleum Corporation Limited and other leading Furnace Oil importers.