- The Asian high sulfur fuel oil (HSFO) market is likely to be resilient for the better part of 2022.
- There is an incremental demand from a rise in scrubber-fitted vessels entering the market and steady to firm demand from the utility sector.
The Asian HSFO market to be resilient for 2022, the current demand-supply balances indicate a market that is likely to be rangebound in the near term due to ample availability, amid a slight tapering off of demand for the product as a burning fuel from the regional utility sector, says an article published in S&P Global.
HSFO demand
Unlike IMO-compliant low sulfur fuel oil, which primarily finds use as bunker, demand for HSFO for power generation is facing seasonal headwinds in the new year, traditionally a period of low demand as temperatures across the region, and consequently air-conditioning demand, are lower.
November
Underpinning a lackluster near-term sentiment, the market structure at the front of the Singapore 180 CST HSFO swaps curve flipped from a backwardation, which averaged $1.17/mt in November 2021, to a contango averaging minus 31 cents/mt in December, S&P Global Platts data showed.
December
A similar trend was observed in the higher viscosity 380 CST HSFO grade too, where the prompt-month market structure slipped from the November 2021 average of $1.63/mt to 53 cents/mt in December.
Optimistic Outlook
The medium to longer-term outlook for the Asia HSFO market looks optimistic.
This optimism is underpinned, among other things, by expectations of a growing number of scrubber-fitted vessels entering the market in 2022.
“Considering that Hi-5 spread is likely to stay at $100-$150/mt with a payout period of two-and-a-half to four years, scrubber installation is set to grow by 2% to slightly above 4,625 in 2022,” Platts oil market analyst Manish Sejwal said.
The differential between IMO-compliant LSFO and the erstwhile mainstay 380 CST HSFO, also referred to as the “Hi-5” spread, is a key parameter that shipowners typically look at while evaluating the economics and the payout period for scrubber installation.
Data Trends
The spread between benchmark Singapore marine fuel 0.5%S cargo and Singapore 380 CST HSFO cargo averaged $119.69/mt in 2021, up from $96.91/mt in the previous year, Platts data showed. The spread has risen 82.43% to average $126.17/mt in the second half of 2021 as compared to the H2 2020 average.
With shipowners globally committed to reducing their carbon footprint, taking the scrubber route in the time that it takes for cleaner alternative fuels to grow in size and scope not only would help achieve decolonization goals in the meantime, but also spur HSFO demand, industry sources said.
Platts Estimation
According to Platts Analytics estimates, the share of HSFO within the global marine fuel demand mix is likely to rise to 21% in 2023 from 15% in 2020, and further to 28% by 2030.
Major bunkering hubs like Singapore have already been seeing a sizable growth in HSFO demand since the International Maritime Organization’s mandate to cap sulfur at a 0.5% maximum for global marine fuels came into place in 2020.
The demand for HSFO bunker at the world’s largest bunkering hub accounted for almost 26% of the total sales over January-November 2021, up from 21% in 2020, latest data from the Singapore Maritime Port Authority showed.
“More vessels freshly fitted with scrubbers are sailing from shipyards in China, which spell good news for bunker demand at North Asian ports and in Singapore too. [HSFO bunker] demand has been fairly consistent,” a Singapore-based bunker supplier said.
Led by a marked increase in inquiries for HSFO bunkering, relatively smaller ports within the region — which had ceased HSFO bunker supply after the implementation of IMO-2020 mandate — like Colombo in Sri Lanka and Mundra and other ports in India have also started supply in 2021.
Utility demand
Expectations of rising demand for HSFO as a burning fuel from the utility sector, especially East of Suez, would also hold the market in good stead in the year ahead, market sources said.
Platts Analytics estimates the demand for high sulfur residual fuel oil from the global power generation sector to rise 3% year on year to 1.13 million b/d in 2022.
A global effect
A global rise in the use of HSFO in the utility sector is led by the Middle East, one of the major demand centers within Asia. Platts Analytics estimates demand from the Middle East for HSFO as a burning fuel to grow 10% on the year to 667,400 b/d in 2022, thus accounting for almost 60% of the global demand.
Reflecting this optimism, the market structure for Singapore 180 CST HSFO and Singapore 380 CST HSFO swaps spread was seen firming from a contango of minus 75 cents/mt and minus 50 cents/mt for February/March 2022 to a backwardation of plus $2.5/mt and plus 2.9/mt for September/October 2022, when summer burning demand peaks, Platts forward curve assessments showed.
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Source: S&P Global
