The competitive pricing of IMO-compliant marine fuel at Zhoushan port is likely to be sustained as state-owned refiners set the stage to ramp up upstream production to cater to the downstream delivered bunker market, industry sources said.
The two heavyweights in the China marine fuel market, Sinopec and Chimbusco — a PetroChina-COSCO joint venture — will likely maintain a price advantage over competitors to boost bunker sales, leaving other suppliers scrambling to trim valuations of Zhoushan-delivered marine fuel 0.5%S bunker, market participants said.
Sinopec and Chimbusco did not comment at the time of writing.
“The competitive pricing strategy at Zhoushan has outlasted market expectations, drawing marine fuel 0.5%S demand from Singapore and other North Asian ports,” a Singapore-based trader said.
S&P Global Platts data showed that the discount of Zhoushan-delivered Marine Fuel 0.5%S averaged 20 cents/mt to the delivered grade in Singapore between January and July this year, flipping from an average premium of $8.49/mt over the same period in 2020.
Most Zhoushan-based bunker suppliers have barely been able to cover barging costs as the delivered market has remained depressed amid stiff price competition from the state-owned suppliers, traders said.
The Zhoushan-delivered Marine Fuel 0.5%S bunker premium over Singapore Marine Fuel 0.5%S cargo assessment has slumped to average $9.73/mt during January-July 2021, down from $39.70/mt during the same period in 2020, Platts data showed.
Suppliers are unwilling to relinquish their time-chartered barges, which would otherwise mean ceding market share to Sinopec and Chimbusco, a Zhoushan-based bunker trader said. “A recent pickup in demand has helped suppliers move oil rather than let barges sit idle.”
The differential for August-loading ex-wharf Zhoushan Marine Fuel 0.5%S bunker to Singapore Marine Fuel 0.5%S cargoes was concluded weaker at minus $2/mt to plus $2/mt, from flat to a premium of $2/mt for July loading, due to high inventories, Platts reported quoting bunker suppliers and traders on Aug. 13.
During and outside the Platts Market on Close assessment process on Aug. 12, term contracts for the balance August supply of ex-wharf 0.5%S marine fuel was heard offered at premiums of $2-$3/mt to FOB Singapore Marine Fuel 0.5%S cargo assessments.
Independent refiners, private bunker players pressured
The state-owned refining giants have consolidated to fuel a price-competitive environment, which potentially threatens the sustainability of the relatively smaller independent refineries’ downstream bunkering business, market sources said.
Larger suppliers could seize more demand to increase sales at the expense of their smaller counterparts, as buyers pivot toward the more competitively priced offers from top suppliers such as Chimbusco and Sinopec Zhoushan, a fuel oil trader at a Chinese company said.
The relatively smaller scale independent refineries and privately owned bunker suppliers have increasingly been sidelined also due to their exclusion from the latest allocation of the export quotas in late May and a downsizing of crude import quotas, industry sources said.
According to industry sources, bonded bunker suppliers could potentially fill downstream supply deficits by purchasing low sulfur fuel oil cargoes from the state-owned refineries, like Sinopec and PetroChina.
Between January-July this year, Sinopec accounted for almost 63% of the 6.1 million mt of low sulfur fuel oil produced in China, while PetroChina and CNOOC made up for the rest, data published by JLC showed.
According to a Beijing-based source with knowledge about the latest tranche of bonded LSFO bunker export quotas issued early August, Sinopec, CNPC, and CNOOC were allocated 1.93 million mt, 830,000 mt, and 240,000 mt, respectively.
This brought the total export quota to 11 million mt, exceeding the 10 million mt allocated in 2020.
The smaller refineries hope to receive quotas subsequently, as the higher cost involved with importing LSFO cargoes would further erode any pricing edge against Sinopec and Chimbusco.
Domestically produced fuel oil exported under quotas are competitive in the bonded bunkering market, due to exemptions from a 13% value-added tax and a consumption tax of Yuan 1,218/mt ($188.50/mt).
The Zhoushan City Council has laid out ambitious plans to sell at least 6 million mt of bonded bunker fuel in 2021, 27% above the 4.73 million mt recorded in 2020.
Source: Platts