Analysis: Singapore's HSFO bunker sales reflects bullish momentum for 2021

Singapore — Singapore's robust high sulfur fuel oil bunker sales for January reflects continued strong demand for the grade in the world's largest bunkering port as ready availability and continued bunker calls by ships, particularly container ships fitted with scrubbers, are likely to support its consumption and quell fears of a drastic decline in its demand in the city-port after the International Maritime Organization's global sulfur mandate.

According to an industry consultant, Singapore has a lot of container demand and the lack of HSFO in other small and medium sized ports at times has helped Singapore boost its sales. The relatively fast recovery from the pandemic in Asia, China in particular, has also been positive for bunker fuel sales, he added.

Singapore's HSFO sales in January gained 47.9% year on year to reach 1.13 million mt, while its share in the country's total bunker sales for January stood at 25.1% compared with 16.9% a year ago, latest data from the Maritime and Port Authority of Singapore showed.

Barge availability at Singapore is also positive for HSFO bunkering, sources said.

"It's very well equipped, there are more barges than there is demand [for HSFO]," a bunker trader said.

The strong demand is also supported by Singapore's storage infrastructure.

"Players are willing to take up more [HSFO] storage inland. They probably see more demand coming," a second-bunker trader said.

A shipping source noted that the strength in container freight rates will also likely deter "slow steaming", a process that entails reducing the speed of a ship to cut down fuel consumption, thereby supporting HSFO consumption in that segment.

The short-term outlook for container shipping remains positive, as the current backlog of cargoes -- and mismatch between where containers are and where they need to be -- will not be resolved for months, BIMCO said in its report in February. It has forecast the container fleet to grow by around 3% in 2021, up slightly from 2.9% in 2020.

HSFO prices in Singapore remain competitive compared with many other Asian ports, making Singapore a prime choice for bunkering, sources said.

In February, IFO 380 CST in Singapore, for example, averaged $373.89/mt compared with an average of $390.61/mt in Busan and $383.89/mt in Hong Kong.

Other advantages

Singapore's excellent bunkering infrastructure, tank storage and blending expertise, given that most ports have wound down their high sulfur bunkering activities, or are inadequately equipped, also favor demand at the port.

The recent launch of two new bunkering standards -- the Singapore Standard 660:2020 and the Technical Reference 80:2020 -- has increased transparency and quality assurance in the maritime industry, which is already reaping the benefits of productivity enhancements and cost savings after the implementation of TR 48.

The purpose of TR 48 was to document principles, requirements and procedures in the application of mass flow metering to bunker in Singapore.

MPA's concerted efforts to evoke licenses of errant bunker players has also provided a level playing field for bunker suppliers and enhanced the integrity of the system, a bunker supplier said.

The case for scrubbers

Meanwhile, continued installation of exhaust gas cleaning systems, or scrubbers, will also likely support HSFO demand, industry sources said.

While scrubbers have been criticized as an inadequate solution to tackling environmental emissions and one that entails high maintenance costs, they remain a vital compliance option to meet environmental emissions in shipping.

The European Parliament's Transport Committee recently agreed to a draft resolution in the marine transportation industry, calling for the consumption of heavy fuel oil in ships to be phased out.

"To recommend a restriction on the use of EGCS -- a technology that is already putting shipping on the right path towards carbon neutrality -- with fundamentally no supporting scientific evidence is only halting the progress we have made so far," Poul Woodall, executive director of the Clean Shipping Alliance, that represents over 30 shipping companies, said in a statement on Feb. 25.

A recent CE Delft study found the increase in CO2 footprint from the additional refining of MGO to likely be in the range of 10%-15% and potentially as high as 25%, CSA said. By contrast, the increased CO2 from EGCS is only in the range of 1%-1.5%. Furthermore, the EGCS technology achieves much lower sulfur output than required by the IMO 2020 rule, it added.

"I think HSFO will only go up; vessels with scrubbers won't go back to LSFO. When more retrofitted ships hit the water, that'll bring incremental demand," a third bunker trader said, adding that the Hi-5 spread was also tilting in favor of boosting scrubber uptake.

"With Brent [crude] at this price and spread widening and more scrubber orders realized, good chance [the market will continue to grow]," another trader resonated.

In Singapore, the price differential between HSFO and Marine Fuel 0.5% sulfur averaged $298.90/mt in January 2020 as the market was transitioning to the IMO2020 mandate. The price differential narrowed to average as low as $60.32/mt in September, but recovered to average $103.33/mt in January, according to Platts data.