A closed-door meeting on Tuesday among naphtha industry participants has set the stage for further developments to the CFR Far East Open Spec Naphtha contract, particularly on the issues of ship-to-ship transfers and greater credit risk protection, sources who attended the meeting said this week.
The meeting was attended by panel members convened during last year's CFR Far East Open Spec Naphtha conference -- traders, as well as lawyers from different trading companies -- and was arranged in order to take stock of and revisit issues pertinent to the industry.
It was arranged by Asdem Asia, which also organizes the annual OSN conference. The company, headed by managing director Andrew Wilding, provides consulting, legal and arbitration services for the Asian naphtha industry.
"The meeting was to basically build on the issues discussed before so we can move these forward for discussion and possible inclusion into the contract," one participant said Wednesday, declining to comment on the details "as there were only a few people [at the meeting] and they might be sensitive about information getting out".
But other industry sources said two of the main topics discussed involved the inclusion of a letter of indemnity for purposes of credit risk protection as well as setting into motion trial shipments of STS transfers for monitoring purposes, which will make it easier for arbitrage cargoes to be put into the chain.
PROPOSALS SOUGHT ON LETTER OF INDEMNITY
During the conference last year, the inclusion of a letter of indemnity had been raised as a possible way to reduce the credit risk traditionally borne by the first seller in the chain in the event of cargoes discharging without bill of lading documents. The issue had first cropped up in 2008 when oil trader Projector Asia -- which had cargoes in the OSN chain -- had to wind up operations. At the time, Mitsui & Co. had been the first seller in the chain.
"It [the letter of indemnity] is really about the allocation of risk along the chain. There are a few proposals, around three to four, that are on the table and there will also be an external advisor included in the process," a source said this week.
The external advisor is said to be a prominent London-based shipping law firm and fees for the firm's services will be borne by broking houses Ginga, Amarex and Aspen.
Market participants interested in submitting proposals have 30 days starting January 25 to send in their proposals, which will be considered and debated during the next OSN conference later this year, the source said. STS TRIAL SHIPMENTS "IMMINENT"
In addition, sources said the commencement of trial shipments for STS transfers was "imminent", pending a notice that will be sent out to the industry by Asdem's Wilding.
"It's going to be a two-stage process where there will be a series of five trial shipments by way of STS and then we will look at how that went with a view to putting in a permanent amendment if it gets ratified at the [next] OSN meeting," the source said.
Originally there were to be 10 trial shipments but this was whittled to half in order "to speed up the process", Wilding said Thursday.
"The reason that we're keen to implement and move this along as quickly as possible is that this issue has been under discussion for a long time now," Wilding said.
"It depends on the market and once we've got the trial shipments out of the way, they can discuss at the next OSN conference whether it's attractive or not and once they decide, we can try to get it implemented then," he said.
