Analysis: Hin Leong's exit leaves rivals eying its Asia gasoline market share

Singapore — Singapore oil trader Hin Leong Trading's financial distress has left a gaping hole in Asia's gasoline market, one of the refined products where it was among the largest players, causing a decline in short-term liquidity and opening the door for rivals like Saudi Aramco and Petronas to take market share.

Over the years, many market participants in Asia kept a close watch on Hin Leong's large trading positions, with traders tracking its activity and often tailoring their own positions based on estimates of how much volume the oil trader would transact for a given month.

"Now, it's difficult for people to hitch a ride. Liquidity will go down," a Singapore-based trader said.

Traders have also had to scramble to find alternative plans for the cargoes that Hin Leong canceled, including putting the gasoline into tanks and floating storage, sources said.

As one of the leaders in Asia's gasoline markets, Hin Leong accounted for a majority of trades concluded during the Singapore Platts Market on Close or MOC assessment process for gasoline. The company bought a total of 22.25 million barrels of 92 RON, 95 RON and 97 RON gasoline between April 2019 and March 2020, and sold 450,000 barrels of the same grades over the same period, according to trades observed during the MOC process.

Hin Leong's 92 RON trades accounted for 62.6% of total 92 RON trades on the MOC over that period, while 97 RON trades dominated 52.4% of total MOC trades of the grade, and its 95 RON trades represented 25.7% of the total 95 RON trades.

Overall, the company's trades represented more than half, or 54.6%, of total gasoline trades during the MOC process for the period between April 2019 and March 2020 .

In the first quarter of 2020, Hin Leong remained a significant buyer, picking up 5.9 million barrels of 92, 95 and 97 RON gasoline during the MOC process, accounting for almost 26% of its total traded volume between April 2019 and March 2020, Platts data showed.

To put the volumes in perspective, Indonesia imports about 10 million barrels of gasoline a month, Malaysia about 4 million barrels a month, and Philippines about 1.5 million barrels a month, according to S&P Global Platts Analytics.

RIVALS TO FILL TRADE GAP

Hin Leong has term contracts with Indonesia's state-owned Pertamina, the largest gasoline importer in this region, and used to supply Pertamina with 2 million barrels of gasoline per month. It also used to sell 1 million barrels a month to Myanmar. It is unclear what will happen to those supply contracts, and Pertamina has not responded to queries.

But with Hin Leong absent, traders expect a realignment of suppliers to markets such as Indonesia, and rivals like Saudi Aramco, Petronas and some others who have been competing heavily to step in, traders said.

In recent years, Saudi Aramco and Petronas became prominent gasoline suppliers to Pertamina on the back of their own homegrown refining capacity expansions and product exports. While they were able to edge out other traders, they were unable to erode any of Hin Leong's share of the Pertamina pie.

"Hin Leong always undercut everyone [in its offers to Pertamina]," a second Singapore-based trader said.

Hin Leong also brought price efficiencies to the market as its sister company Ocean Tankers gave it a freight advantage, and favorable freight economics were passed on to buyers.

Hin Leong's oil trading capabilities and network, and Ocean Tankers' sea transportation expertise had allowed the trader to optimize and synergize oil buying on an FOB basis and sales on a CFR basis to compete internationally in the oil markets, the company said in its recent filing.

With Hin Leong out of the picture, some of the price efficiencies could be lost and buyers like Pertamina may have to pay higher prices.

"There will be others coming in to fill the gap [on the MOC]. They will buy and sell, but will not be as big a consistent buyer as Hin Leong," the second trader said.

OTHER COUNTERPARTIES

On the supply side, China's state-run PetroChina and Thailand's national oil company PTT, two of Asia's largest gasoline exporters, have been key sellers to Hin Leong during the Platts MOC process.

PetroChina was the top seller to Hin Leong for 92 RON gasoline over April 2019 to March 2020, accounting for 30% of Hin Leong's purchases, with PTT a close second, supplying 26% of its purchases over the same period.

Some of these sales have been affected in recent days.

PetroChina International (Singapore) terminated contracts with Hin Leong for the sale of 10 ppm sulfur gasoil and 92 RON gasoline, and demanded for immediate payment of $23.87 million earlier this month, according to Hin Leong's bankruptcy protection filing.

PetroChina also asserted a claim against Hin Leong for retaking possession of petroleum products on the basis of a "retention of title" clause under the relevant contracts, the filing showed.

Banks have also demanded payment for a cargo of 100,000 barrels of 92 RON gasoline Hin Leong purchased from PTT International under a letter of credit, while demanding to be notified about the status and exact current location of the cargo, the filing showed.