Feature: Asia's low sulfur bunker markets set for strong Q1 as IMO 2020 kicks off

Singapore — The recent strength in low sulfur bunker fuel markets across Asia is expected to continue well into the first quarter after the International Maritime Organization's 0.5% sulfur mandate kicked in on January 1.

A rapid shift in demand towards cleaner fuels in Q4 last year boosted low sulfur bunker premiums significantly in December, flipping spot differentials from discount to premium at some major bunkering ports in Asia.

Singapore's spot delivered marine fuel 0.5% differential to Mean of Platts 10 ppm gasoil assessment averaged at a premium of $23/mt in December versus a discount of $28/mt in November, S&P Global Platts data showed. The differential stood at a premium of $76/mt on December 31, the data showed.

Market sources are expecting the upward momentum to continue into Q1 amid steadily robust demand and tight prompt barging availability.

Recent ex-wharf offers for Q1 and January-loading term contracts have also surged in line with delivered market sentiment, Singapore-based sources said.

"I will offer at above plus $60/mt levels [over 10 pmm gasoil] if it's for January term; delivered is strong so there is no reason to sell ex-wharf cheap," a Singapore-based fuel oil said earlier this week.

Prices have surged from December-loading ex-wharf term levels, which were at discounts in the range of $50-$55/mt to MOPS 10 ppm, Platts reported earlier.

Nonetheless, most sellers were opting for delivered rather than ex-wharf sales due to stronger delivered margins.

"Suppliers are telling me that they prefer to just offer in the spot market... expecting the uptrend to continue into March," a Singapore-based bunker trader said.

DEMAND SHIFT TO NORTH ASIA?

Singapore's bunker price spreads to North Asian ports have also narrowed significantly in recent weeks, even though prices in both regions climbed in December. Delivered marine fuel 0.5% prices in Shanghai, which were $55/mt higher than in Singapore at the start of Q4, had crunched to $5/mt on December 31.

In addition, the Shanghai delivered marine fuel 0.5% spread to the Singapore delivered marine fuel 0.5% averaged $7/mt in December, narrowing from $17/mt in November. Shanghai prices even dipped below Singapore for the first time on December 4, at minus $4/mt, Platts data showed.

Shanghai prices marine fuel 0.5% prices had averaged $20/mt higher than Singapore's between the launch of assessments on July 1 and December 31.

"If the Singapore price continues to be so expensive then we will switch to other ports -- in fact we were already taking more at Shanghai on some days in December," a Singapore-based source from a shipowner said.

"A bunch of ships [from a Chinese company] that couldn't take delivery in Singapore are coming to Shanghai to fulfill their requirements, and due to the contract we have with them, we have to supply them as a priority, thus we have no more offers for the rest of the market," a major China-based supplier said.

Spot offers in the region have thinned, with several suppliers in the region facing the same cargo tightness.

"As Singapore is tight, there is a lull in cargo imports into South Korea. Refiners have maximized production but it is still tight," a bunker trader for the South Korean market said.

Similarly in Hong Kong, suppliers noted that buyers are now fixing orders earlier than usual to secure supply.

"We have only limited cargo for spot inquiries," a bunker supplier based in Hong Kong said.

SUPPLY DEFICIT LOOMS

Most sources expected there would not be enough LSFO supply to cater to bunker demand across Asia in Q1 unless China started exporting in the near future.

The supply deficit would prompt some shipowners to take marine gasoil if they could not secure enough LSFO, market sources said.

"I think Q1 will still be quite supported [for LSFO]... if there's any kind of easing, it will be in February... I think what's going to happen next is that gasoil will become very expensive," a major bunker supplier in Singapore said.

"Ultimately, Singapore will be the epicenter that people have to come back to if the neighboring ports are not doing well [in securing supply]. There's a lot of strain on Singapore to fulfill the requirements for LSFO," the supplier added.

However, traders expect Singapore to receive only 2 million-2.5 million mt/month of LSFO in Q1 due to limited supply from other parts of the world, Platts reported earlier. Singapore is the largest bunkering hub in the world, with monthly bunker demand averaging 4 million mt/month in 2019, according to data from Singapore's Maritime and Port Authority.

-- Jeslyn Lerh, jeslyn.lerh@spglobal.com

-- Su Ling Teo, su.ling.teo@spglobal.com

-- Edited by Wendy Wells, wendy.wells@spglobal.com