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FEATURE: Singapore bunker market set to consolidate further amid fierce competition

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FEATURE: Singapore bunker market set to consolidate further amid fierce competition

Highlights

Barging spread below typical $5-$8/mt breakeven level

More demand for low sulfur bunkers needed for delivered business

Singapore bunker supplier list shrinks amid consolidation

Intense competition in the Singapore delivered bunker market that has squeezed margins, particularly for IMO-complaint low sulfur bunker fuel, is limiting the ability of some players to operate profitably, industry sources told S&P Global Platts in the week to Sept. 24.

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An uptick in the cost to secure ex-wharf supplies amid a firming upstream marine fuel 0.5%S cargo market, coupled with stiff competition to retain a slice of the delivered market, has led to a crunch in margins for some companies, especially those considered tier-2 in the Singapore bunkering landscape, market sources said.

The result has been that some medium-sized independent companies are considering scaling down operations or even exiting the market, one source said.

The market is not good for physical suppliers, with even the big players being impacted by intense competition amid tepid demand, an industry analyst said.

Oil majors and large integrated trading companies can usually fare relatively better in the delivered market due to control over their upstream and downstream supply chains, as their costs are lower than independent suppliers that have to factor in the ex-wharf cost component, a Singapore-based bunker supplier said.

The narrowing price spread between marine fuel 0.5%S bunker sold on a delivered basis and on an ex-wharf basis, or barging spread, has been cutting into margins, especially for smaller-sized sellers involved only in the delivered bunker trade, market sources said.

The spread between Singapore-delivered and Singapore ex-wharf marine fuel 0.5%S bunker has averaged $3.91/mt over Sept. 1-23, shrinking from $5.06/mt in August and $5.61/mt in July, Platts data showed.

Some suppliers are struggling to break even as the barging spread is below the $5-$8/mt typically required to offset operational costs, a Singapore-based trader said.

The premium for marine fuel 0.5%S bunker delivered in Singapore over the benchmark Singapore marine fuel 0.5%S cargo assessment has averaged $7.33/mt over Sept. 1-23, shrinking from $7.71/mt in August and $7.86/mt in July, Platts data showed.

The premium to deliver IMO-compliant bunker to vessels calling Singapore has averaged $7.65/mt in the third quarter to Sept. 23, down from $15.45/mt in Q3 2020, according to Platts data.

The fall in the delivered premium comes amid an increase in costs to acquire product on an ex-wharf basis. The premium for Singapore ex-wharf marine fuel 0.5%S bunker over the Singapore marine fuel 0.5%S cargo assessment has averaged $3.42/mt over Sept. 1-23, rising from $2.65/mt in August and $2.25/mt in July, Platts data showed.

"More demand, especially for low sulfur fuel oil bunkers, is needed to sustain the delivered bunkers business, which has been under pressure from below-average trading activity amid ample availability," another Singapore-based bunker supplier said.

The squeeze in margins was also likely pushing companies to scale down operations by reconsidering or not renewing the time charter of their barges, traders said.

The number of MPA-registered bunker barges currently stands at around 207, down from 210 in March 2021 and 215 in July 2020, Maritime and Port Authority of Singapore data showed. The 207 figure includes a newly-registered LNG bunker barge.

Consolidation likely underway

While the Singapore bunkering landscape has already seen the number of licensed suppliers shrink in recent years, further consolidation due to the stiff competition was very much on the cards, market sources said.

"Given where the delivered premiums are, the market is still too crowded with 41 [licensed] bunker suppliers even after a couple of recent exits; a few of these entities could even be dormant or biding their time with only few bunkering jobs on hand," another trader said.

Singapore has seen its accredited bunker supplier list shrink from over 50 in September 2017 to 45 in January 2021 and 41 in August.

A recent supplier to exit the Singapore bunker market was Pacific Bunkering Services, which had not renewed its bunker supplier license in the latest MPA list.

"The cessation of operations was not due to economic reasons," a company source said.

The MPA closely monitors bunker demand and supply in the Port of Singapore while ensuring that the local bunker market remains well-diversified and competitive, a MPA spokesperson told Platts recently.

"The number of bunker suppliers will ebb and flow with local and global market developments. We ensure that there is sufficient competition in the market so that bunker pricing is competitive internationally," the spokesperson added.

MPA has established a robust regulatory framework through the implementation of bunkering standards as well as an accreditation scheme, licensing and enforcement regime for bunker suppliers.

"This regulatory framework ensures that all suppliers can provide bunkering services competently," the MPA spokesperson said.