For decades, Singapore has been the world's pre-eminent marine fuel hub, accounting for 21% of the 230 million metric tonnes global bunker market. But a spate of measures undertaken by Beijing over the past few years is helping China reshape global shipping fuel markets and undercut rivals from Singapore to South Korea by becoming the world's fastest-growing major marine fuel hub.
China has emerged as Singapore's greatest competitor in the high-stakes global bunker industry after marine fuel sales by the Middle Kingdom almost doubled over the past five years.
China is now luring ships that travel to nearby ports in major economies such as South Korea and Japan, thanks to low bunker prices and a massive ramp-up in its marine fuel refining capacity. Tax changes made last year have underpinned a ramp-up in production and helped China to greatly lower bunker prices and draw demand away from Singapore and other bunkering hubs in ports across the region.
Zhoushan, an archipelago to the south of Shanghai on the east coast, has emerged as the epicenter of China's explosive bunkering industry.
Cheap Low-Sulphur Marine Fuel
A key factor that has been helping China steal market share from Singapore and its Asian rivals is a critical pricing advantage in the low-sulfur fuel--0.5%S--between Zhousan and competing ports. Low-sulfur marine fuels have been in high demand ever since IMO 2020 took effect in January 2020.
Over the years, Singapore has managed to grab a leading market share by outpricing its Asian rivals. However, Zhoushan's 0.5%S prices dropped below Singapore's in April and have traded at a discount ever since.
Chinese refiners mostly have Beijing to thank for booming business.
Refiners have been able to rapidly expand refining capacity after Beijing introduced a value-added tax rebate on domestic low sulfur fuel that has helped refiners to add desulfurization units and produce low sulfur marine fuel at no extra costs. This has been giving them a clear pricing advantage over their Asian rivals.
Consequently, the country's low sulfur output jumped 131% Y/Y to 2.69 metric tonnes in the first quarter.
Industry consultant OilChem estimates China's bunker sales rose for a fifth straight year to 16.9 million tonnes in 2020--China's sales are expected to hit 20 million tonnes in the current year.
China, however, still has some way to go before it can claim the title of the world's biggest marine fuel hub since Singapore is expected to sell 50 million tonnes of the commodity in the current year.
Will China eventually become the world's leading marine fuel hub? After all, it has many of the necessary pieces to make this a reality.
First off, the country is home to the world's busiest ports thanks to its massive manufacturing industry, meaning it already has a huge internal market.
Second, the local government plans to spend 520 million yuan (S$110 million) to expand Zhoushan's anchorage and build new shipping channels at Zhoushan.
Related: Oil Prices Recover After Manic Monday
Then, of course, Chinese refiners have been outcompeting everybody thanks to a benevolent government.
Still, it will not be a walk in the park unseating a player that has been so dominant for so long.
After all, Singapore is more reliable with its efficient and timely delivery of fuel, not to mention that it enjoys geographical superiority by sitting at the crossroads of a centuries-old trade route that links the region to Europe, the Middle East and the US Gulf Coast.
Finally, Singapore has been closing the pricing gap between itself and Zhoushan.
Low sulfur futures
But before you think of setting up shop at Zhoushan, remember that Beijing has lately become hostile towards private refiners, aka the teapots.
In a dramatic reversal of fortunes, Beijing has announced huge cutbacks in import quotas for the country's private oil refiners. According to Reuters, China's independent refiners have been awarded a combined 35.24 million tons in crude oil import quotas in the second batch of quotas this year, a 35% reduction from 53.88 million tons for a similar tranche a year ago.
The big reduction has come as part of a government crackdown on private Chinese refiners who have become increasingly dominant over the past five years. This is intended to allow Beijing to more precisely regulate the flow of foreign oil as it doubles down on malpractices such as tax evasion, fuel smuggling, and violations of environmental and emissions rules by independent refiners.
The move is also intended to claw back control of China's crude refining sector from private refiners to state-owned refineries. And it's reminiscent of its earlier crackdown on big tech operations that were getting dangerously powerful and seen to be threatening party politics.
Related: Clash Of the Energy Titans: Oil vs. Solar
China's teapots have been steadily grabbing market share from entrenched state players such as China Petroleum and Chemical Corporation (NYSE:SNP), also known as Sinopec, and PetroChina Co. (NYSE:PTR) ever since Beijing partially liberalized its oil industry in 2015. Teapots currently control nearly 30% of China's crude refining volumes, up from ~10% in 2013.
The same thing is happening with marine fuel refiners.
Last December, Beijing issued 5 million tonnes of very low sulfur fuel oil (VLSFO) export quotas in the first release for 2021.
According to Reuters, the quotas were issued to state-run Sinopec, CNPC, CNOOC, Sinochem and privately controlled Zhejiang Petrochemical Corp.
Last year, China issued a total of 10 million tonnes of VLSFO quotas to the same group of companies, so maybe this will become a long-term trend.
Luckily, investors can still play China's booming marine fuel business by trading in the country's newly launched low-sulfur fuel oil futures. China launched trading on the futures on the Shanghai International Energy Exchange (INE) last year, opening its market to foreign investors in a bid to raise its pricing power in the global market.
By Alex Kimani for Oilprice.com
More Top Reads From Oilprice.com:
Read this article on OilPrice.com
"share" - Google News
July 25, 2021 at 04:00AM
https://ift.tt/3BNRETo
Marine Fuel: The Next Market Share Battleground In Asia - Yahoo Finance
"share" - Google News
https://ift.tt/2VXQsKd
https://ift.tt/3d2Wjnc
Bagikan Berita Ini
0 Response to "Marine Fuel: The Next Market Share Battleground In Asia - Yahoo Finance"
Post a Comment