Singapore — Bunker fuels with viscosity of 500 CST and above face an uncertain future ahead of the International Maritime Organization's global sulfur limit deadline, as industry sources expect demand to decline to almost zero in Singapore and 20%-40% globally.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
"RMK [bunker fuels with viscosity of 500 CST and above] is dying a natural death going into 2020," a Singapore bunker supplier said.
The IMO will cap global sulfur content in marine fuels at 0.5% from January 1 next year, down from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%.
Shipowners will, therefore, have to either burn cleaner and more expensive fuels, or install scrubbers to continue to use high sulfur fuel oil to comply with the rule.
While shipowners are likely to prefer compliant fuel with a high viscosity, to blend down higher viscosity grade fuel oil to meet a 0.5% sulfur limit would be difficult from a technical perspective, industry sources said.
"To continue to use that product [RMK], you will need to blend it [to reduce the sulfur content], but it's technically hard to achieve low sulfur [of less than 0.5%] together with high viscosity [of 500 CST and above]," a Singapore-based bunker trader said.
Singapore's bunker demand for 500 CST marine fuel oil totaled 10.6 million mt in 2018, according to Maritime and Port Authority of Singapore data. This is about 21% of Singapore's total bunker sales in 2018.
SCRUBBER UPTAKE REMAINS LIMITED
"RMK is already not the main product ... only containers with scrubbers can mostly take it going forward. So, demand is going to be worse," another Singapore bunker supplier said.
About 8%-10% of total bunkers consumed in 2020 will be scrubbed to meet compliance with the IMO 2020 rule, industry sources said this week.
"Although there isn't a one-to-one direct relation between scrubbers and RMK demand, global consumption for RMK will be more than halved [from current levels] because of the limited uptake of scrubbers," a shipowner said.
Scrubbers, or exhaust gas cleaning systems, clean a vessel's emissions on board, allowing it to burn HSFO while still complying with the new sulfur limit. The technology works by spraying alkaline water into the vessel's exhaust, capturing sulfur and some other emissions as they are produced.
Nonetheless, some sources are still casting doubts on the viability of scrubbers due to the investment required, its maintenance cost, as well as uncertainty around upcoming regulations in future.
Turning tides: The future of fuel oil after IMO 2020
This report provides a thorough introduction to the IMO's sulfur cap on marine fuel, its impact on markets and what to expect from the new regulatory framework.Download the report
"Scrubbers can help with sulfur oxides but what happens when stricter rules with other emissions gain attention," a shipowner, who was opting for LSFO over scrubbers, said.
Even among those installing scrubbers, some said that they saw scrubbers as a short-term solution, meant to help them tide over the initial period of uncertainty when 0.5% sulfur compliant fuel might not be that readily available.
NARROW PRICE SPREAD TO 380 CST DAMPENS 500 CST DEMAND
The narrower price spread between 380 CST bunker fuel and 500 CST bunker fuel would also dampen demand, as the discount to RMG [380 CST bunker fuel] was no longer that attractive, sources said.
"We do buy some RMK occasionally, but these days, the price spread [between RMG and RMK] is too narrow for it to be attractive. It has been like this for a while since all the heavy stuff is not coming to Asia as much, in terms of density and viscosity," another shipowner said.
The spread between Singapore ex-wharf 380 CST and ex-wharf 500 CST bunker fuel has averaged $2.73/mt so far this year, compared with $4.48/mt in 2018, Platts data showed.
Still, sources said that RMK demand will not be completely wiped out globally.
"Buying will remain need-based from regular buyers from container lines," another bunker trader in Singapore said.
Active spot trades for RMK will decrease further into 2020 and purchases will be mostly on a term basis, sources said.
--Jeslyn Lerh, email@example.com
--Surabhi Sahu, firstname.lastname@example.org
--Edited by Geetha Narayanasamy, email@example.com