The Chinese port city of Zhoushan has seen an uptick in demand and is expected to lure a large number of vessels making their journeys to and from Northeast Asia to refuel in the most cost efficient way.
Since a fuel oil tax rebate effective Feb. 1, Chinese domestic refineries have ramped up supply of low sulfur marine fuel for bonded bunkering, pushing down prices to parity with Asia’s key bunkering hub of Singapore.
The Zhoushan delivered marine fuel 0.5%S flat price averaged $319.11/mt so far in September, compared with $321.65/mt over the same period for delivery in Singapore, S&P Global Platts data showed.
“Demand has been steady, as Singapore prices are higher and Hong Kong supply is uncertain,” one supplier said.
In late July Hong Kong imposed a 14-day mandatory quarantine for crew members of ships calling at its port solely for bunkering purposes since, leading suppliers to cut down on cargo procurement and halting some bunker operations.
Market sources estimate China’s low sulfur fuel oil production at around 850,000/month, and local suppliers continue to procure LSFO from overseas to meet any excess demand. China’s marine fuel market demand averages 1 million mt/month.
However, Chinese suppliers are increasingly cutting down on imports as prices become more competitive at home.
“We stopped importing bunker fuel about three or four months ago,” one Zhoushan-based supplier said. “Our fuel is now completely sourced from domestic refineries as prices are better.”
Located in the eastern part of China Zhejiang Pilot Free Trade Zone, Zhoushan aims to supply 5 million mt of bunker fuels in 2020, and to breach the 10 million mt mark in 2025, according to documents released by Zhoushan City Council and Zhejiang Provincial Government.
To boost its port economy, China does not allow fuel oil cargo exports. Hence suppliers can only supply LSFO for bonded bunkering at its ports, keeping a lid on prices.
Zhoushan is also a key delivery location for the LSFO bonded bunker futures contract traded on the Shanghai International Energy Exchange, which launched June 22. The contract provides a hedging tool to the developing Chinese low sulfur marine fuel market.
During August, Zhoushan port supplied 420,000 mt of bonded bunker fuels, jumping 56.73% year on year in light of its competitive prices. Over January-August, Zhoushan port supplied 2.81 million mt of bunker fuels, up 13.4% year n year.
In the key port of Singapore, market participants said they have seen some low sulfur bunker fuel sales shift to China, especially when prices at Zhoushan are at parity with Singapore.
“During weeks when prices in Zhoushan are at parity to Singapore or just $5-10/mt more, we do see demand shifting there,” a Singapore-based bunker trader said. “Some suppliers in China may also be willing to offer low sulfur bunker fuel at more competitive prices to Singapore depending on volume.”
Even so, market participants in Singapore said they are unwilling to lower offers to entice buyers. “So far, the demand shift has been prevalent from end-August,” another Singapore-based bunker trader said. “We are not sure if this trend is going to continue yet. For now, Singapore is still seeing stable demand in September so it’s not something we are too worried about.”