Singapore Marine Fuel 0.5% dips after China approves fuel oil VAT rebate for bonded bunkering

New York — The Singapore Marine Fuel 0.5% market edged lower in mid-morning trade in Asia Thursday after the Chinese government Wednesday announced a long-awaited 13% value-added tax rebate on fuel oil would take effect February 1, paving the way for domestic refiners to supply bunker fuel to ships at Chinese ports plying international routes.

The Singapore Marine Fuel 0.5% February/March spread was offered at $15.75/mt at 11 am Singapore time (0300 GMT) Thursday to no takers, indicating tradable value was lower than that. The time spread was assessed at $15.75/mt at Wednesday, S&P Global Platts data showed.

"In the swaps market, the [February] Five-GO spread [spread between Marine Fuel 0.5% and 10 ppm Gasoil] dropped to minus $8-minus $9/mt after the news from minus $3-minus $4/mt," a Singapore-based trader said.

China typically imports 1 million mt/month of bunker fuel, mainly from Singapore. "Our bunker fuel volumes are 100% imported," a Chinese supplier said.

The approval is expected to reduce China's imports from Singapore and, in the longer term, help ease supply tightness in Marine Fuel 0.5% in Singapore.

"Fundamentally, in the long term, you could say that Chinese refiners will produce more, but how long that takes to happen and really affect things is another question," a shipowner said.

China could potentially be a fuel oil exporter as its domestic demand is around 12 million mt/year, lower than local refiners' capacity of 18.5 million mt/year.

"[The ability to export will be] a potential game changer," a China-based trader said.

However, the announcement did not include export quota arrangements for the tax rebate.

"We will definitely produce more for export is there is an export quota in the future," a major Chinese refiner said.

As such, market sources are not expecting the approval to significantly ease the supply tightness in Singapore in the near term.

"We are not expecting to see any impact [in Singapore] because the market is still quite constrained in terms of logistics. It's not as easy as China turning the taps on [for exports]," the shipowner said.

Even so, a few market sources have adopted a wait-and-see stance in the last two trading days. "While I don't think there is any impact yet, we prefer to monitor things for now," a Singapore-based bunker trader said.