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Higher export taxes on Russian fuel oil to impact bunker prices

Highlights

Higher export taxes levied on fuel oil this year would severely impact profit margins of Russia's fuel oil exporters and lead bunker fuel suppliers to hike prices, making them less competitive against ports such as Singapore, delegates at the Russian Far East Bunker Supermarket conference in Petropavlovsk-Kamchatsky heard Thursday.

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Speaking at the conference, Tranzit DV market research consultant Andrey P Michulis said that the Far East region now has an annual captive volume of around 2 million mt.

But in order to increase beyond this level, suppliers in the Far East region need to be competitive on prices, he added.

One such instance is the comparison of prices for 380 CST in South Korea versus Slavyanka in Russia that can mean a savings of around $700,000 for shipowners traveling the route from Busan to Los Angeles.


Taking into account a bunker fuel volume of 9,000 mt with prices in South Korea on March 13, 2015 at $363/mt versus $280/mt in Slavyanka, and an additional two days for the ship to deviate to Slavyanka to bunker, it would still make economic sense for shipowners to bunker in the Far East, he said.

The savings also took into account miscellaneous costs such as port duties and time charter rates of $14,000/day for the two days of deviating from the route, Michulis added.

If all favorable factors fall into place, the Far East region should see bunker sales volumes double this year, from last year's 8.145 million mt, a conference attendee said.

But Russia's fuel oil exporters and bunker fuel suppliers are now facing pressure from an increase in export taxes under the country's latest changes within the tax maneuver this year, where the export duty on fuel oil has increased to 76%, from 66% of the tax on crude oil.

From April, the export duty on heavy oil products, including fuel oil and bitumen, is set at $99.40/mt, up 23.6% from $80.40/mt in March, Platts reported previously.

This is in line with the increase in Russia's export tax on its main Urals crude and other crude blends -- except those enjoying a more favorable tax regime -- to $130.80/mt ($17.84/barrel) from April, up 23.6% from $105.80/mt ($14.43/b) for March.

On average, Russia produces around 78.4 million mt/year of fuel oil and about 75% of that is exported to China, Europe, North Asia and other countries including Singapore, Michulis said.

Russian refineries' fuel oil output include Komsomolsk with 2 million mt/year, Khabarovsk with 1.4 million mt/year, Diteko with 160,000 mt/year, Angarsk with 1.6 million mt/year, Achinsk with 70,000 mt/year, Yaysk with 700,000 mt/year, Anzhersk with 200,000 mt/year, and Omsk with 1.3 million mt/year.

At the moment, bunker fuel in the Far East region is trading at a discount of $75/mt to Mean of Platts 180 CST high sulfur fuel oil assessments, compared with discounts of $90-$100/mt last year, according to Michulis.

Meanwhile, the Far East region saw around 2.7 million mt of bunker fuel bought by container vessels in the second half of 2014, Michulis said, adding that the major container lines that have been the biggest buyers include MSC, Maersk and COSCO.

In 2014, Nakhodka -- the biggest port for bunkering in the Far East -- saw around 1,800 vessels call in port, compared with under 600 vessels in 2013, he added.

While most of these vessels called in port for cargo discharge or loadings, it was highly likely that all these vessels also bunkered at the same time, said one attendee at the conference.

At prices that are more competitive than most major ports globally, it would make absolute sense, he said.

Russian regulations currently do not allow bunker-only calls in ports but suppliers in the region have been lobbying for the opening up of the ports to allow such transactions to maximize the bunkering potential of the region, said trade attendees.

In the past, shipowners have been known to buy small quantities of consumer goods like mineral water, just to be able to call in port for cheap bunker fuel but the authorities may soon clamp down on such practices, said a market source at the conference.

Suppliers have also adopted similar practices to Singapore's SS600 bunkering standards for operational procedures and fuel quality, said Michulis, indicating a first step towards building the region as a major bunker hub.

--Goh Shu Hui, shu.hui.goh@platts.com
--Edited by Irene Tang, irene.tang@platts.com