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FEATURE: China pulls bunker demand from other Asian ports as competition grows

Highlights

Singapore, South Korea see slower demand

Ships on bunker-only calls move to China on lower prices

Ambitious target heats up competition

Lower bunker fuel prices in China following tax changes last year that have underpinned a ramp-up in production are drawing demand away from the key regional bunkering hub of Singapore and other ports across the region, according to market sources.

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"Prices are so low [in China] there is no reason not to go to China now," a Singapore-based bunker trader said.

"A key factor that has depressed overall demand in Singapore is the marine fuel 0.5%S spread between the port of Singapore and Zhoushan. Shipowners have been maximizing stems while queuing at anchorage for cargo operations around Zhoushan, said a Singapore-based trader.

Singapore typically has the most competitive prices in the region but Zhoushan marine fuel 0.5%S delivered bunker prices dropped below those in Singapore on April 12 and have remained at a discount since then. Zhoushan delivered bunker was assessed at $495/mt, $8.75/mt lower than Singapore on April 29.

The price differential between Zhoushan and Singapore averaged minus $5.18/mt over April 1-29, down from plus $5.43/mt in March, and is set to surpass the previous lowest monthly average since Platts started assessing Zhoushan bunker fuel in July 2019, which was in February this year when the differential averaged minus $4.62/mt.

The trader added that this has capped bunker demand around Singapore for the whole of April. The best-case scenario is that bunker sales in April might be on par with March volumes, but a slight reduction is more likely, the trader said.

"Demand is very low, but Korean shipping companies are still taking bunker fuel at Korean ports as they have cargo works," said a bunker fuel trader at South Korean company.

Chinese refineries have significantly expanded fuel oil production ever since Beijing allowed a value-added tax rebate on domestically produced low sulfur fuel oil barrels supplied to the country's bonded zones from February last year. China's output of low sulfur bonded bunker fuel surged 131% year on year to 2.69 million mt in the first quarter, data from local information provider Longzhong showed.

The cost of locally produced bunker fuel oil is lower than imported cargoes, market sources said.

"Chinese refiners equipped desulfurization units, and they don't need extra investment to produce low sulfur bunker fuel. That is why Chinese refiners can offer bunker fuel at competitive prices," said a source at a trading house.

In the delivered bunker markets of Zhoushan and Shanghai, Chimbusco and Sinopec Zhoushan are competing with each other fiercely to expand market share, fuel oil suppliers in Zhoushan said.

"We've seen demand increase a lot, volumes have risen for a single order," a Zhoushan based supplier said.

PULLING DEMAND

China is actively expanding its bunker sales in 2021, market sources said.

Zhoushan bunker sales came in at 4.72 million mt in 2020, and the port aims to expand the sales to higher than 6 million mt in 2021, according to the Zhoushan City Council. The Port of Zhoushan targets 10 million mt of bunker sales by 2025.

"Taking bunker demand from ships on bunker-only calls is the only way to increase sales," said the source at a trading house.

China's advantage in bunkering is that a lot of ships go to China for cargo loading/discharging. Some of those ships have previously taken bunker fuel outside of China because prices are lower, market sources said.

"Usually the end point and start point for most vessels, especially containers in Asia, is China, so it will make sense for them to take most bunkers in China now, since they don't even have to deviate," the trader added.

Bunker demand in Singapore is one of the targets which Zhoushan and Shanghai can divert bunker demand from, while demand in South Korea could go to North China such as Qingdao and Dalian.

Hong Kong has already seen a diversion of demand arising from bunker-only calls to Zhoushan and other neighboring ports after the government set a new regulation mid last year which mandates a 14-day quarantine for ship crews for vessels calling at its port without cargo works.

Hong Kong has also implemented a ban on crew changes coming from or transiting through India, so the next best alternative for vessels is to conduct a crew change at Chinese ports.

"This ban drove a further diversion of demand from Hong Kong to the Chinese ports, given the geographical proximity," said a China-based shipbroker.