China bunker differentials to Singapore crunch on uptick in domestic output

Singapore — The valuations for marine fuel 0.5%S bunker traded in the major Chinese bunkering hubs of Shanghai and Zhoushan crunched in the recent past relative to Singapore, as domestic Chinese refiners ramp up production of the IMO-compliant fuel amid demand destruction due to COVID-19.

The spread between the outright value of marine fuel 0.5%S bunker delivered in Shanghai and Singapore has averaged just $2.70/mt so far in April, compared with an average of $11.45/mt in March and $27.35/mt in February, S&P Global Platts data showed.

The same spread between Zhoushan and Singapore has averaged $1.80/mt so far in April, while it stood at $8.82/mt in March and $23.60/mt in February, the data showed.

"There's a lot of output, but demand is low due to COVID-19. Refiners are not adjusting their planned [production] volumes lower, [so] prices are very attractive," a Shenzhen-based bunker trader said.

China, one of the largest demand centers for marine fuel in Asia, has traditionally met most, if not all, of its near 1 million mt/year demand by imports from Singapore, the world's largest bunkering port.

But Chinese refineries have steadily been ramping up production of IMO-compliant low sulfur marine fuel since Beijing implemented February 1 a rebate on value added tax and consumption tax for domestically produced low sulfur marine fuel for use as bonded bunker.

In February, over 60,000 mt of domestically produced low sulfur marine fuel is estimated to have enjoyed VAT rebate for bonded bunkering at Chinese ports, sources have said.

Although minuscule compared with China's demand, this volume, sources have said, is nearly twice the volume produced in January, before the tax rebate was implemented.

Sinopec has supplied 1.61 million mt of IMO-compliant marine fuel for supply as bonded bunker fuel in the first quarter, up 38% year on year, said Sinopec Fuel Oil Sales Co., a wholly-owned subsidiary of the state-owned refining behemoth, Wednesday.

Sinopec is expected to produce about 6.5 million mt of compliant fuel over February-December, while PetroChina is likely to produce 200,000-250,000 mt/month from February-March onward, said market participants with direct information from sources in these companies.

A double whammy brought on by a slump in demand from the coronavirus pandemic coupled with incremental domestic production has led the premium for spot delivered marine fuel traded in Shanghai and Zhoushan to levels not seen since the International Maritime Organization's mandate for a maximum sulfur limit of 0.5% in marine fuels came into effect January 1.

The premium for Shanghai-delivered marine fuel 0.5%S bunker over benchmark Singapore marine fuel 0.5%S cargo averaged $18.92/mt so far this month, compared with an average of $40.42/mt in March and $69.18/mt in January, Platts data showed. The same premium for similar product delivered in Zhoushan has averaged $18.08/mt in April as compared with $37.79/mt in February and $65.43/mt in January, the data showed.

Signaling an apparent return of bunker demand to China, a Singapore-based fuel oil trader said Thursday that one of the largest Chinese suppliers has been in the spot market recently looking to import an Aframax-sized cargo of marine fuel 0.5%S.

"There has hardly been any [spot] inquiry to import [MF 0.5%S] cargo into China in the last couple of months, so this is a good sign," said the trader.