Zhoushan's March LSFO storage availability at six-month high, outlook mixed

Low sulfur fuel oil storage available for lease at China's largest bunkering hub of Zhoushan rose to a six-month high of 730,000 cu m as of Feb. 28, 7.4% higher on the month, according to the latest Zhejiang Mercantile Exchange data seen by S&P Global Commodity Insights March 2.

LSFO storage availability rose for the second consecutive month, suggesting a drop in stockpiles.

But upstream cargo availabilities have remained ample since February, especially amid tepid demand in the downstream bunker market, Zhoushan-based traders said March 2.

Slower freight activity amid the global economic headwinds have dampened Zhoushan's bunker demand since February, while competition among the licensed bunker suppliers also intensified, according to China-based traders.

Demand in March was mostly seen steady amid a lack of uptick in bunker sales, though some players view China's economic recovery in a more positive light, traders added.

The Platts Zhoushan-delivered Marine Fuel 0.5%S bunker premium to the benchmark FOB Singapore Marine Fuel 0.5%S cargo values inched down $1.56/mt on the day to a near 12-month low of $11.20/mt March 2, while February's average slumped to $20.86/mt from $32.67/mt in January, according to data by S&P Global.

"China's manufacturing activity has been gradually improving, so this could lead to a stronger shipping activity along with probably higher export volumes," a Zhoushan-based bunker supplier said.

Purchasing Managers Index for the manufacturing sector jumped to 52.6% in February, up 2.5 percentage points on the month and 2.4 percentage points higher on the year, according to the latest report by the National Bureau of Statistics of China.

Rising domestic output

Market sources said China will increase its dependence on domestic LSFO production for bonded bunkering supplies rather than imports from overseas.

China's domestic LSFO production is estimated to reach 1.3 million mt in February from 1.2 million mt in January and likely to extend the rising trend in March as the state-owned refineries' effort to hit their higher annual target for 2023, an analyst with local information provider JLC said.

S&P Global's calculations based on customs data showed that exports of domestically produced LSFO rose at least 30.9% on the year to 10.14 million mt in 2022, when total fuel oil exports fell 6% on the year to 18.04%.

The total LSFO output in 2022 was up 43.47% on the year to 15.9 million mt, with a monthly average of 1.31 million mt across the year, S&P Global previously quoted data from JLC.

On other oil products, naphtha's storage space in Zhoushan also climbed 16.4% from February to 710,000 cu m in March, ZME data showed.

Storage availability across all oil products at Zhoushan were up an overall 6.4% on the month to 4.23 million cu m in March, with jet fuel storage space posting a marginal decline of 0.8% on the month to 380,000 cu m.

Meanwhile, storage availabilities for gasoline and diesel products rose 7.9% and 6.7% on the month respectively, to 680,000 cu m and 957,000 cu m in March, whereas crude oil inventories remained unchanged from February, ZME data also showed.

Overall tank utilization rates at Zhoushan slipped 2.84 percentage points month on month to 52.78% since March, with 4.27 million cu m of storage available for lease out of a total capacity of 9.04 million cu m.