Weaker crop yields in Argentina have put downward pressure in marine fuel demand in its key port of Buenos Aires, fostering stronger competition among suppliers and the neighboring port of Santos, Brazil.
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"It is true, we are seeing lower volume than normal in the high season," a source said about bunker demand in January, echoing sentiment from other sources.
The South American country has been facing its worst drought in 60 years amid the third consecutive year of La Niña weather conditions. Local wheat harvest was smaller-than-expected in 2022, and the soybean and corn crops are also on track to be lower in 2023.
The result has been fewer dry bulk ships requesting bunker fuel in the Buenos Aires/Zona Comun area, a second source said.
"There are fewer ships to lift [bunkers], and refineries have product they have to sell. So, if there are two inquiries, there is pressure to lower prices," according to the second source.
A report published earlier this month by the Buenos Aires Grain Exchange, or BAGE, highlighted that poor soil moisture and high temperatures have been affecting yields in the sowed area and therefore, volumes.
With planting virtually completed, Argentina was expected to produce 45.5 million mt of soybeans in the 2022-23 marketing year (April-March), down from around 50 million mt initially considered, according to the latest US Department of Agriculture's estimate. Market participants, however, doubt such a volume will be achievable, and even the USDA's attaché in Buenos Aires now predicts an output of 36 million mt.
Lower demand of bunker fuels has strained a market with an increased number of competitors, leading to wide price ranges among suppliers in the Buenos Aires area, as some of them vie with lower values for market share, mainly in the marine fuel 0.5%S segment.
It has also led to a price inversion with the port of Santos, where values for 0.5%S are traditionally lower than in Buenos Aires. In 16 of the 20 active market days in January, pricing for the IMO-compliant fuel in Santos was higher than in Buenos Aires, reaching a maximum premium of $30/mt Jan. 13 and a minimum of $1/t Jan. 31.
The average price for 0.5%S in Buenos Aires in January was $640/mt, compared with $636/mt in Santos.
In December, pricing in the Argentinian port was $623/mt, compared with $619/mt in the Brazilian hub.
While values in both ports rose 3% in January from the previous month, price pressures could be noted when compared with a 12% increase during the same period in wholesale marine fuel 0.5%S on the US Gulf Coast, which increased in January to $584/mt from $523/mt in December.
Bunker fuels production increase
The bunker fuel market services the agricultural power houses that both Argentina and Brazil represent. While Argentina is the world's largest exporter of soybean meal and oil, Brazil is the top seller of raw soybeans, with its 2022-23 harvest pegged at a record above 150 million mt.
Both Brazil and Argentina have low-sulfur crude ideal to blend into marine fuel 0.5%S, the minimum grade that meets International Maritime Organization standards on sulfur content.
However, while Argentina gears its output towards domestic sales, Brazil exports most of its production.
Brazil's shipments of fuel oil and low-sulfur bunker fuel hit a record-high of 14.855 million cu m of fuel oil and bunker fuel in 2022, up 26.4% from the 17.757 million cu m exported in 2021, according to the National Petroleum Agency. Its total production in 2022 was of 18.365 million cu m, an increase of 8.3% from 16.953 million cu m in 2021.
In contrast with Brazil's data, Argentina's Energy ministry provides a differentiation between production of fuel oil and IFO blends.
Argentina produced 1.074 million cu m of IFO blends in 2022, a 16% increase compared with 923,802 cu m in 2021. IFO blends are considered marine fuel 0.5%S bunker, a source familiar with the sector said.
The country produced 1.357 million cu m of fuel oil in 2022, used mostly in the power and industrial sector. The output was 2% lower than in 2021, when it reached 1.370 million cu m.
For March and April, sources expect a recovery in bunkers demand, with the soybean harvest kicking off in Argentina, but drought effects are still on the radar.
"With the harvest by March-April, demand should start to increase," a third source said, but with the unfavorable weather, "the logic expectation is that it does not increase too much."