2020 HSFO-LSFO Differential Pricing Likely To Be $134/MT

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We have been asserting that the differential cost between HSFO and VLSFO will never be as low as $67/MT as projected by some sources in the bunker industry, says a Viswa Group in its latest technical update for its clients.

No Confusion Ahead

This information naturally created a lot of confusion in the minds of those who had to make important decisions on how to address the 2020 fuel regulations. With such a small difference of $ 67/MT, the temptation was to forget about the scrubber option and go for VLSFO. Even if such a VLSFO fuel is available today at the prices quoted, it has to be reminded that this is price as of today. What will be the price come 1.1.2020?

Japan Refiner Pricing: Clarity Amidst Confusion?

We now have some clarity in the midst of this fog of confusion. Japan’s largest refiner JXTG Nippon Oil & Energy has come out with a set price for the supply of low sulfur fuel. Though this price is set to be for the period October to December 2019, it is safe to assume that this pricing will continue through to 2020 as well. The reason is that JXTG is a big supplier
supplying nearly 50% of Japan’s domestic shipping.

  • The prices projected by JXTG is 57,780 Yen/ kl 531.04 $) Per Metric Ton this will be $ 547.5 per MT based on a density of 0.970.
  • The HFO 380 grade fuel is currently being sold for $ 413 per MT.
  • The differential between HSFO and VLSFO works out to be 134.5 $ per MT.
  • This is double the differential cost of $67/MT projected by some sources.
  • With this price differential of $134/ MT, the ROI on a scrubber fitted on a 10 MW engine will be 20 months instead of 15 months we had projected.
  • For bigger engines of say 18 MW or 25 MW, the ROI will be 15 months instead of 10 or less months projected earlier.

Why this differential pricing is likely?

There are two good reasons why the differential prices will be at least 134/MT.

  • There is a minimum cost differential between HSFO and VLSFO.
  • Secondly, no business will want to leave money on the table when the market will bear and accept this price differential.

Differential pricing to be more after 2020

Immediately after 1.1.2020, this differential pricing will be much more than $ 134/MT. However, in about 6 months there will be stability and equilibrium in the market with the price differential settling down at $134/MT. These are Viswa Group’s projections.

You do not have to be guided by them. We can wait and watch!!

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Source: Viswa Group

 

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