- North Asia high sulfur bunker fuel demand jumps in July as more ships install scrubbers: traders
Demand for high sulfur bunker fuel in North Asia has risen noticeably in July from the month before as an increasing number of vessels complete scrubber installations, market sources said July 22.
"HSFO demand has been picking up gradually since Q2," a Hong Kong based supplier said, estimating that demand in July was 20% higher than in June.
Supply of the grade was tight in Hong Kong as scrubber-installed ships, which are typically large container vessels, have been taking big stems of 3,000-4,000 mt each in the month, and the number of such ships calling at Hong Kong has increased from June, suppliers said.
In Japan, a gradual lowering of refinery run rates to around 60% in July has capped supply, just as demand for HSFO picks up.
"It may be difficult to secure availabilities of HSFO; demand will continue to increase due to new scrubber installations," a trader in Japan said, He added that his traded HSFO volume had doubled in July from the month before.
South Korea's sole HSFO producer GS Caltex had reduced LSFO volumes by 50% in July to 30,000 mt while maintaining HSFO production at 120,000 mt, with an eye on increasing HSFO output in August, S&P Global Platts reported earlier.
SPREAD TO LSFO NARROWS
However, shipowners that have opted to install scrubbers face challenges ahead.
The oil demand destruction wrought by COVID-19 narrowed the spread between 380 CST high sulfur bunker fuel and marine fuel 0.5%S at Asia's bunkering hub of Singapore by more than 50% to an average of $72.59/mt in Q2 from $198.48/mt in Q1, Platts data showed.
A price gap between the two marine fuels below $50/mt brings the payback logic of scrubbers into question. Payback is the cost saving of using HSFO instead of LSFO after investing in scrubber installation.
“Last year, the LSFO-HSFO price gap was around $150/mt, but it has narrowed to $60/mt [recently],” a China based source said.
In addition, ports across Europe, the US and China and Singapore have banned the use of open-loop scrubbers and require ships to switch to using compliant fuels within their port limits. Open-loop scrubbers pump in seawater and discharge the washwater back to the sea, raising pollution concerns.
HSFO availability outside major ports was also a concern for shipowners.
"Vessels which have already locked in premiums for the year on term contracts are in a better position than those that are buying HSFO in the spot market [due to narrowing premiums]. The longer it goes, there is more uncertainty to HSFO supply as refineries may cut HSFO production in future," a China based source said.
"After recouping capital on scrubber investment, it won't matter so much any more," the source added.