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Feature: Changes to credit in bunker industry gain traction as IMO 2020 nears

London — Momentum is building behind changes in the bunker credit industry, as impending changes in marine fuel sulfur content signal higher costs.

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The Peninsula Petroleum Group, a major supplier of marine fuels in Europe, last week announced the renewal of its European receivables finance facility and the addition of a package of inventory finance solutions that increase the group's liquidity by $150 million.

"These increased lines are intended to support PPG's growth plans in the higher price environment expected due to IMO 2020," the company said in a statement Wednesday.

Meanwhile, Bunker Holding has signed a new long-term credit facility of $1 billion, supporting the group's "continued growth and the need for further financial flexibility in light of IMO 2020," the company said Friday.

HIGHER COSTS IN LOW SULFUR ENVIRONMENT

With a mandated 0.5% sulfur content cap for marine fuels necessitating higher quality and more expensive fuel, bunker suppliers, trading houses and shipowners expect to operate within a higher cost environment.

According to S&P Global Analytics, the price for the new 0.5% sulfur marine fuel will likely be somewhere between a blend of gasoil with 1% sulfur fuel oil, and marine gasoil.

Specifically, a price set at 60% marine gasoil and 40% LSFO could be viewed as the lower limit, while a price based on 90% marine gasoil and 10% HSFO could be viewed as an upper limit, according to analysts.

Based on this formula and Platts data for 2018, 0.5% sulfur marine fuel could be priced, on average, between $525.20/mt and $589.81/mt.

Hence, with a $1 million credit line, market participants would have been able to secure an average of 2,492 mt of 3.5% bunker fuel with 380 CST viscosity in the port of Rotterdam during 2018.

On the other hand, based on the formula, market participants would have been able to secure between 1,695 mt and 1,904 mt of 0.5% sulfur marine fuel on average during 2018 in Rotterdam -- marking a decline of 24-32% in securable volumes.

INCREASED NEED FOR CREDIT

As such, market participants said the extension of credit lines is necessary to continue operating in the bunker market, with some sources saying trading houses could offer credit facilities to customers if banks or other financial institutions do not extend sufficiently larger credit lines to market participants.

"Traders are in need because they have to make sure that there is sufficient credit in the market," one bunker buyer said.

"The thing for oil majors is this: they generally have 20-30 big customers such as container liners," the buyer said. "The big question is: are they going to extend their credit line by the corresponding 30-50% that fuel is getting more expensive by? If not, then the big companies need to go to trading houses because they won't get all the credit necessary for bunker fuels from the majors."

"What we will see in 2020 is a significant difference to how the market operates today," the buyer said.

Furthermore, sources also said bunker suppliers sought to increase their liquidity as they prepare to obtain new oil storage to blend and store lower sulfur marine fuels.

It may just be larger companies that are able to attract the extra credit. Smaller suppliers will be unlikely to get extended credit lines and this, alongside pressure from higher prices, may force some to leave the market, according to sources.

--Leon Izbicki, leon.izbicki@spglobal.com

--Tom Washington, thomas.washington@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com