By WINNIE ZHU
Declining demand for ship fuel in Singapore, the merchant
fleets biggest refueling hub, is signaling weakening
prospects for a rebound in Chinese growth.
Fuel oil for immediate delivery traded at the biggest
discount to later supplies in 16 months on April 28,
according to data from PVM Oil Associates. Sales of so-called
bunker dropped for a third month in March, the longest
retreat since November 2007, the latest Maritime and Port
Authority data show.
The discount in Singapores fuel market shows how growth
in demand to ship goods in and out of the worlds
second-biggest economy weakened this year. While Chinas
trade volume unexpectedly rose last month, economists
surveyed by Bloomberg anticipate the slowest annual
economic growth in almost a quarter century.
Falling fuel-oil prices are a consistent reflection of
a slowing Chinese economy, Victor Shum, a vice
president at IHS Energy Insight, a consultant in Singapore,
said May 6. I expect the fuel oil market to remain weak
on sluggish bunker demand.
Front-month 380-centistoke fuel-oil swaps cost $3.25/ton less
than second-month contracts on April 28, the biggest discount
since December 2012. While front-month swaps since rebounded
to a premium of $1.25 as the contracts rolled into a new
month, this years peak was $9.13 in January.
Sales of bunker in Singapore, which supplied fuel valued at
about $26 billion last year, dropped to the lowest level
since February 2013 in March, Maritime and Port Authority
data show. The 2% decline in the first quarter was the
biggest for the period since at least 2005.
Bunker volumes here are very low, as trade slows not
only in China, but also in India
, Simon Neo, the
executive director of Piroj International, a Singapore-based
broker, said April 28. Sales were previously largely
supported by Chinese trading activities, said Neo, who
was chairman of the International Bunker Industry Association
until the end of March.
Chinas exports in April were 0.9% higher than a year
ago, when data were inflated by fraudulent invoicing. That
compares with the median estimate for a 3% drop in a
Bloomberg survey of analysts. Exports fell 6.6% in
March and 18.1% in February.
First-quarter economic growth slowed to 7.4%, the weakest
pace in six periods. The governments official full-year
target is 7.5%, which would be the slowest since 1990, and
the median of 58 economist estimates compiled by
Bloomberg is for growth of 7.3%.
Indias economy, Asias third-largest, expanded
4.5% in the year through March 2013, the slowest pace in a
decade. The government estimates gross domestic product
increased 4.9% in the year ended March 31.
The decline in fuel sales in Singapore is
marginal and it remains a competitive bunker port
in the region, said Paul Bradshaw, the Singapore-based
general manager for Asia at OW Bunker A/S, which controls 7%
of the global market.
The reduced demand for raw-commodity products in China
has impacted regional bulk and tanker trade flows and led to
a subsequent drop in vessels calling in the region,
Bradshaw said May 6. Secondly, there has been a
transfer of volumes to other ports, primarily in Far East
Russia and Europe
, as shipping companies opt
for lower-cost ports.
Declining prices for bunker, typically produced at a loss
after making gasoline and diesel, may shrink refiners
margins while also lowering costs for vessel owners. About
half of all fuel oil is used by ships, according to the
Paris-based International Energy Agency.
Fuel-oil imports by China, the regions second-biggest
buyer after Singapore, fell to 1.51 million tons in March,
the least in three months, government data show.
First-quarter purchases dropped 23% from a year earlier.
Independent refiners in China use fuel oil as feedstock
to produce higher-value
fuels such as gasoline. They cut processing rates to 29.4% of
capacity in the week through April 11, the lowest level in
almost a year, according to Oilchem.
net, an industry
website. The so-called teapot plants account for more than
half of the nations fuel-oil imports.
Declining fuel-oil supplies to Asia from sources such as the
and the Caribbean, may help
boost prices in Singapore, according to KBC Energy Economics,
an industry consultant based in Walton-on-Thames, England.
Western nations are scheduled to send 3.12 million tons of
fuel oil to Asia this month, compared with a monthly average
of 3.48 million tons last year, according to data from
shipbrokers including Poten & Partners Inc. About 3.86
million tons arrived in April, the most in eight months.
Inflows should be lower for the month of May, that
should help, Jit Yang Lim, a Singapore-based analyst at
KBC, said April 28. Demand may not pick up, but the
supply side is lesser.