Sinopec poised to benefit from rising China marine fuels output: sources

Singapore — Sinopec is expected to capitalize its position as a leading supplier of marine fuels in China, as the government paves way for domestic refiners to ramp up production of IMO-compliant marine fuels, markets participants said this week.

The state-owned refining conglomerate is estimated to meet around 40% of 1 million mt/month or so of bunker fuel sold to ships calling at Chinese ports, said traders.

China issued a 10 million mt export quota to five oil companies to limit the volume of domestically produced tax-free low sulfur fuel oil for bonded bunkering at Chinese ports, S&P Global Platts reported April 28 quoting market sources.

Under the export quota, Sinopec was awarded 4.29 million mt, PetroChina and Sinochem were allocated 2.95 million mt and 900,000 mt, respectively, while the remaining 860,000 mt went to CNOOC.

Chimbusco, equally owned by PetroChina and China COSCO Shipping Corp., is China's leading bunker fuel supplier holding nearly 50% of the market share.

Prior to the International Maritime Organization's 2020 sulfur cap, China imported all of its fuel oil to meet its bunker fuel demand.

But since Beijing on February 1 approved a tax rebate for domestically produced fuel oil supplied to bonded storage, refiners have ramped up low sulfur fuel oil output, thereby reducing China's dependency on imported bunker fuel.

China's top four state-owned refiners -- Sinopec, PetroChina, CNOOC and Sinochem -- plan to boost their combined low sulfur fuel oil production capacity to 18.15 million mt/year in 2020, Platts reported previously, quoting company sources with knowledge of the matter.

Of this, Sinopec plans to ramp up LSFO production capacity to 10 million mt/year, while PetroChina would have the capacity to produce up to 4 million mt of IMO-compliant fuel by end-2020.

"Sinopec, as the world's biggest refiner by capacity coupled with its trading profile, has [more] opportunity to grow," a source close to the company said.

Sinopec could not immediately be reached for comment.

Sinopec's advantage

The majority of Sinopec's 10 LSFO producing refineries are located along the eastern and southern coast. As such, the company would be in a position to enjoy a relatively lower transportation cost to supply product to China's busiest bunkering ports of Shanghai and Zhoushan.

To capitalize on the growth opportunity, Sinopec plans to increase this year the number of barges it operates to 100 from about 20 currently, another source close to the company said.

China's bunker market receives demand largely from the eastern and southern bunkering ports like Shanghai, Guangzhou, Zhoushan, Ningbo and Shenzhen as compared to that from the northern ports.

Demand for bunker fuel in northern China comprises about 30% of the market, compared to 60% in the eastern coast and 10% in the south, market sources estimated.

Still, for Sinopec to capitalize on the growth opportunity, it would have to competitively price its product vis-a-vis international prices, especially Singapore, the world's largest bunkering hub, said traders.

"With sufficient domestic supplies, we expect bunker price in China to become more competitive than Singapore in future," a Beijing-based source said.