Aviation fuel supplier will meet creditors after failed gamble on futures market China Aviation Oil (Singapore), which has a near monopoly on importing jet fuel into the mainland, has suffered the biggest trading losses by a state-owned firm in the history of the People's Republic after losing US$550 million in oil derivatives trading. The company said yesterday that rising international oil prices were partly to blame for its losses. 'In October, international oil prices rose steeply, leading to the company having to face significant margin calls on its open derivative positions,' the company statement said. 'From October 26 to date, the accumulated losses from these closed positions amounted to approximately US$390 million. The company is in the process of closing the remaining outstanding positions and estimates the losses from the closure of these positions to be approximately US$160 million.' The company said it would propose a scheme of arrangement with creditors to settle all existing debts and liabilities. CAO Singapore, 60 per cent owned by its Beijing parent, China Aviation Oil Holding, has suffered several blows this month, including the oil trading losses and the collapse of its US$221 million bid for a stake in Singapore Petroleum. CAO said its parent company had granted it a US$100 million loan which had been fully disbursed to meet margin calls and satisfy some of its losses. 'To check the mounting losses suffered by the company from the increasing oil prices, the company has halted all its speculative oil derivative trading activities with the exception of the closing of the remaining open positions,' it said. The company's staggering losses again raise questions about the wisdom of allowing state company officials to play the volatile international futures markets. Analysts said CAO Singapore's troubles could have implications for the forthcoming listing of Air China, which said on Monday it planned to hedge up to half of its jet fuel for next year to reduce the impact of another oil-price shock. CAO Singapore could collapse if the central government does not step in and rescue the company, mainland sources said. The company's shares closed at 96.5 Singapore cents last Friday before trading was halted on Monday. Based on that price, its losses are almost equal to its market value. 'The loss [by CAO Singapore] surpasses that incurred by Zhuzhou Smelter, one of the mainland's top zinc producers, in 1997 when it was found to have racked up US$175 million in losses from unauthorised zinc futures trading on the London futures exchange,' one source said. The company's statement also said it had removed chief executive Chen Jiulin from active duty and China Aviation Oil Holding had named manager Gu Yanfei to lead a special task force to oversee daily operations and the restructuring of the company. Sources said CAO Singapore sold short oil futures when the oil price hovered around US$30 a barrel, expecting profits if oil prices fell. But oil prices have continued to climb this year and have remained around US$50 per barrel. Signs of trouble at CAO Singapore emerged two weeks ago when the company said it would cease most of its oil-trading activities by the end of the month. Then last week, its parent company vetoed its plan to buy a 20.6 per cent stake in Singapore Petroleum.