- China could become self-sustainable in the LSFO market during 2020, producing 18.1 million metric tonnes (mt) of low sulphur bunker fuel this year.
- China will be able to produce 22.6 million mt of the IMO-compliant fuel by 2021, increasing output to 29.6 million mt by 2022.
- IMO 2020 and the COVID-19 economic impact forced many state-run refineries to produce LSFO to serve domestic and international demand.
- China’s marine fuel futures contract to attract strong interest.
- China’s policy on consumption tax may help the country become the largest producer of the fuel oil and help it gain more influence on pricing.
- China’s top four state-owned refiners plan to boost total output of low sulfur fuel oil to 18.15 million tons per year in 2020.
China could become self-sustainable in the low sulphur bunker fuel market during 2020, says an article published in Manifold Times.
China’s marine fuel futures contract
According to Zhang Tong, vice president of state oil major PetroChina International, Chinese refineries would be able to produce 18.1 million metric tonnes (mt) of low sulphur bunker fuel this year, to sustainably serve its own market for marine fuel.
Industry participants said despite low ship fuel demand amid the coronavirus pandemic, China’s marine fuel futures contract on the Shanghai International Energy Exchange (INE) is likely to attract strong interest.
Being self-sufficient
Zhang said China will be able to produce 22.6 million mt of the IMO-compliant fuel by 2021, increasing output to 29.6 million mt by 2022.
If China were to optimise its production capacity, the country would be self-sufficient in supplying its bunker fuel market, which serves an estimated 12 million mt to the international shipping community annually, he concluded.
COVID-19 Impact and IMO 2020
Traditionally, China imported its supply of bunker fuel from suppliers in the region like Singapore and South Korea, but the transition into IMO 2020 and the economic impact of COVID-19 has seen many state-run refineries pivot to producing low sulphur bunker fuel to serve domestic and international demand.
Fuel oil consumption tax
China’s policy on export tax rebate may help the country become the largest producer of the fuel oil and help it gain more influence on the pricing, says an article published in CGTN.
China removed a consumption tax on fuel oil this year and issued its first-ever supply quotas for 10 million tonnes of the new 0.5% sulphur marine fuel, earlier relying on imports from Singapore for its bonded bunkering market of about 12 million tonnes a year.
Retail investors and bunker suppliers
With a lower threshold for opening an account at 100,000 yuan ($14,100) versus 500,000 yuan for crude oil, the LSFO contract could draw more retail investors.
LSFO contract
Yang Jiaming, an analyst at CITIC Futures said the tax waiver, domestic refinery production are the main force to give the pricing advantage and trading volumes. Yang added that the contract’s volumes could top Singapore’s over-the-counter LSFO swaps.
China has 14 licensed bonded bunker suppliers, four of whom have said they will trade the LSFO contract.
LSFO Pricing
The pricing center for low-sulfur fuel oil has not yet formed in the international market. China’s policy on export tax rebate may help the country become the largest producer of the fuel oil and help it gain more influence on the pricing, Qin Zhigang, deputy general manager of China Maritime Bunker Co., Ltd, the country’s leading bunker fuel supplier holding nearly 50 percent of the market share, was quoted (in Chinese) by Shanghai Securities News as saying.
Contracts for monthly deliveries
- The first day of trading saw contracts for monthly deliveries from January to June 2021 with a benchmark price of 2,368 yuan (334.6 U.S. dollars) per ton.
- The price for the January 2021 contract reported at 2,617 yuan (369.8 U.S. dollars) per ton, up 10.5 percent.
Four state-owned refiners
China’s top four state-owned refiners including Sinopec, PetroChina, CNOOC and Sinochem plan to boost total output of low sulfur fuel oil to 18.15 million tons per year in 2020.
Sinopec said in March that its Guangzhou refinery is able to produce very low-sulfur fuel oil for marine fuels.
Major fuel oil suppliers
The major fuel oil suppliers are based in the Middle East, South America, Russia and China.
The global annual output is about 500 million tons, of which about 300 million to 400 million tons are traded on the open market.
Global marine fuel consumption
The global consumption of ship fuel oil has reached 280 million tons in recent years, of which the Asia-Pacific market has grown rapidly, accounting for more than 45 percent, and has become the world’s largest ship fuel oil consumption market.
Regional bunkering hub
The contract could further China’s ambition to build a regional bunkering hub in Zhoushan port to vie for the multibillion-dollar ship fuel market dominated by Singapore, whose consumption of ship fuel oil was about 47.46 million tons in 2019.
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Source: Manifold Times, CGTN
