Low-sulphur bunker prices at China's main ports have moved to a discount to prices in Singapore, drawing some business away from the southeast Asian bunkering hub.
Rising exports, intensifying price competition and tax reforms are making Chinese prices increasingly competitive. Prices of 0.5pc sulphur bunker fuel oil in Zhoushan, China's emerging bunker hub in Zhejiang province, fell to a discount of $5.30/t to Singapore prices on 14 April, the first such discount since 6 January. The discount increased to $14.42/t on 22 April, the widest since $32/t on 27 December.
Low-sulphur 380cst bunker fuel oil prices were at $205.96/t in Zhoushan and $216.51/t in Singapore on 24 April, a $10.55/t discount, according to Argus data.
China's governing State Council earlier this year approved plans to refund taxes on fuel oil exports from 1 February, a move aimed at enhancing the competitiveness of Chinese bunker fuel supplies on the global market. Sales were previously subject to a 13pc value-added tax, which made it more costly to refuel at Zhoushan than Singapore. Exporters are only able to sell to the bonded bunker market, limiting exports to the barge market.
The fall in bunker prices has helped Zhoushan expand its market share, as traders and shipowners switch some business away from Singapore. Bunker sales at Zhoushan rose by 25pc from a month earlier to 348,500t in March, although this was still less than 10pc of Singapore's sales of 4.32mn t in the same month.
Spot low-sulphur bunker volumes in Zhoushan reported to Argus reached a record high of nearly 49,000t in March. Argus started to assess the Zhoushan Bunker Index (ZBI) from June 2019, using a volume-weighted average (VWA) of spot bunker deals captured each day.
Zhoushan is not the only Chinese port aggressively competing with Singapore. Prices in Hong Kong and Shanghai, where Argus also applies a VWA methodology, moved to a discount to Singapore on 14 April from a premium previously amid rising Chinese exports. Hong Kong and Shanghai prices were assessed $14.50/t and $8.50/t lower than Singapore respectively on 24 April. Spot volumes reported to Argus reached a record high of 27,500t in Shanghai and Hong Kong at 32,300t in March.
Chinese ports' price discount is expected to continue as refiners in the country look to export more fuel oil to relieve pressure on rising crude and light distillate inventories. One major state-controlled refiner is planning to raise fuel oil exports by at least 25pc to more than 500,000t in April from 400,000t in March.
Market participants are still waiting for details of potential export quotas for fuel oil, which had been expected as part of the tax reforms.
