East China bunkering premiums nose-dive to multiyear lows; LSFO demand overshadowed

Moderate demand of low sulfur fuel oil, which fell short of market expectations, coupled with ample supply of upstream cargoes at the bunkering hubs of Zhoushan and Shanghai, suppressed bunkering premiums in both ports to multiyear lows, gradually narrowing suppliers' margins, market sources said March 21.

Prompt LSFO demand overshadowed

LSFO demand at the bunkering ports of Zhoushan and Shanghai, while moderating, were boosted by shrinking bunkering premiums, resulting in a shift of inquiries from other neighboring regional ports, bunker traders said.

However, current demand remained low compared with January, which had initially been boosted by the crisis in the Red Sea, as suppliers said demand had improved amid higher fuel oil consumption due to longer voyage duration.

On the contrary, demand for high sulfur fuel oil, which is much cheaper than LSFO, swelled on the year, as uptake of scrubber installation on ships surged, Chinese bunker supplier said, adding that scrubber prices have fallen, making it more economical in the long run.

The differential between International Maritime Organization-compliant LSFO and 380 CST HSFO, also referred to as the Hi-5 spread, is a key parameter that shipowners typically look at while evaluating the economics and payout period for scrubber installation.

Platts assessed the spread between benchmark Singapore marine fuel 0.5%S cargo and Singapore 380 CST HSFO cargo averaged $163.97/mt over March 1-20, narrower than $180.36/mt in February, but higher than $149.85/mt in January, S&P Global Commodity Insights data showed.

Upstream cargo oversupply persists

Bunker suppliers said the primary reason for oversupply is because one of the major domestic refineries in eastern China produced a large number of LSFO cargoes in March, causing further accumulation in stockpiles amid growing tankage volumes.

LSFO production in January was recorded at 1.33 million mt, while output for February was estimated at about 1.2 million mt, the latest JLC data showed, as refineries dialed back output amid the Lunar New Year festive season.

A local bunker supplier said "refineries [usually undergo] maintenance in the summer, so production will tend to increase before [the] summer", supporting bunkering premiums in China in the near term.

However, the oversupply is set to be corrected in coming months, as domestic refineries only decided to produce more LSFO in March, with some market sources close to the matter saying "next month, [refineries] may decide to produce other refined products".

Other factors that further supported premiums included sufficient local exports, coupled with Shanghai International Energy Exchange setting a low price, further pressurizing bunkering premiums in the eastern port of China, a local bunker trader said.

Platts assessed premiums for Zhoushan-delivered marine fuel 0.5%S bunker over FOB Singapore marine fuel 0.5%S cargo values averaged $3.42/mt over March 1-20, waning from an average of $28.02/mt in February, S&P Global data showed.

Platts most recently assessed the premium at a discount of $2.60/mt March 20, easing $2.02/mt on the day, hitting levels not seen since April 2021, when it was last recorded lower at a discount of $5.17/mt, according to S&P Global data.

Premiums for Shanghai-delivered marine fuel 0.5% bunker over FOB Singapore marine fuel 0.5%S cargo values averaged $8.49/mt month to date in March, dipping from an average of $36.02/mt in February, S&P Global data showed.

Platts most recently assessed the premium at 40 cents/mt March 20, easing $3.02/mt on the day, hitting record lows since the data was first published in July 2019.

Weak demand amid thin market activities for the second half of February resulted in a build in inventories, consequently causing bunker suppliers to sell their stockpiles at competitive premiums.

LSFO supply also outstripped demand in H2 February, when the Zhoushan port faced inclement weather events, thinning trading activities, China's bunker suppliers said.

Bunker suppliers said the supply of LSFO were still increasing despite firming demand, noting pessimistic sentiments regarding supply-demand dynamics.

Platts, part of S&P Global, assessed the premium for Zhoushan-ex wharf 0.5%S marine fuel cargoes to FOB Singapore 0.5%S marine fuel cargoes at a discount of $6.60/mt on March 20, declining $1.02/mt on the day, the lowest since the premiums were last assessed at a discount of $9.18/mt on Aug. 14, 2023, when it hit rock bottom.

The premium declined for the fourth straight month in March and averaged at a discount of 30 cents/mt so far in the month, ebbing from an average of $19.57/mt in February, according to S&P Global data.