- China’s fast-paced bunker market growth to lift Asian LSFO
- Demand-supply balance to support near to medium term Asian LSFO market
- Singapore bunker demand may be weighed down by regional competition
The Asian low sulfur fuel oil market will enter 2022 on a firm footing that was likely to continue for much of the year due to the emergence of China as a major ship refueling destination, reports Platts.
Potential for demand destruction
The optimistic outlook comes despite concerns surrounding the potential for demand destruction by the fast-spreading COVID-19 omicron variant.
Even though the marine fuels sector has remained relatively more resilient to demand loss from pandemic restrictions than other transportation fuels, industry watchers have said that global demand was stymied by about 10% in 2020 and has only been limping back to near-normal in 2021.
However China’s fuel oil exports, which mainly comprise the sale of bonded bunker to ocean-going vessels, surged 42.91% year on year to 15.65 million mt in 2020, and at 16.22 million mt over January-October 2021 were up 36.1% year on year, latest General Administration of Customs data showed.
China’s bonded bunker fuel market, which market sources estimate may finish 2021 at around 20 million mt, is expected to further expand in 2022. To help fuel this growth, Beijing is likely to increase fuel oil export quotas in 2022, market sources said. The government has issued 11.39 million mt of low sulfur fuel oil export quotas in 2021.
“The government will increase the export quota,” a fuel oil trader at a Chinese company said, adding that it would encourage further production ramp-up, thereby making product pricing increasingly competitive, especially compared with Singapore.
Competitive pricing
The production ramp-up by Chinese producers since early 2020 has led suppliers at Zhoushan, a major bunkering hub in Zhejiang province in China’s east, to competitively price low sulfur bunker fuel to increase market share.
Zhoushan-delivered marine fuel 0.5%S bunker prices averaged $5.06/mt higher than the same grade delivered in Singapore in 2020, but as of Dec. 23, IMO-compliant product delivered at Zhoushan had traded at an average discount of 50 cents/mt to Singapore in 2021, S&P Global Platts data showed.
Furthermore, Beijing’s move in late November to permit regional port authorities at Shanghai and Guangzhou to approve bunker suppliers themselves will likely lead to more suppliers entering the market and potentially increase price competition further, market sources said.
“More suppliers are expected to enter the market in the first half of 2022, making competition heat up,” another Shanghai-based trader said.
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Source: Platts
