Singapore (Reuters) – China is reshaping global shipping fuel markets by leveraging its booming maritime trade and massive refining capacity to undermine rivals from Singapore to South Korea and become the main hub fastest growing marine fuel in the world.

FILE PHOTO: A Sinopec tanker approaches the cargo ship Dongtai Baoze (L) moored at an anchorage off the port of Zhoushan to supply it with bunker fuel in Zhejiang province, China August 14, 2018. REUTERS / Stringer

China’s growing influence in marine fuels, worth more than $ 100 billion a year globally, has been made possible by an increase in its fuel production and flourishing trade thanks to being home to the world’s largest manufacturing base and four of the world’s five busiest container ports.

This has enabled Chinese marine fuel suppliers, also known as bunkers, to attract business with more competitive prices, thus reducing the market share held by competitors such as Hong Kong, Taiwan, South Korea. , Japan and Singapore.

“As the market stabilizes, China will start pulling more bunkering growth volumes from places like Singapore or other North Asian ports, but this will happen gradually,” said Sri Paravaikkarasu, director of the oil for Asia at FGE.

In the first four months of 2021, China sold around 6.6 million tonnes of Ultra Low Sulfur Fuel Oil (VLSFO) with a maximum sulfur content of 0.5%, which is compliant with the rules for global emissions set by the International Maritime Organization (IMO), according to the latest customs data.

This is an increase of 62% from the 4.1 million tonnes sold in the same period last year.

Chart: VLSFO sales in China:

While this comparison is somewhat skewed by a pandemic-induced drop in activity in early 2020, the change in fueling patterns is clear.

For 2020 as a whole, China sold nearly 15.5 million tonnes of bunker fuel, according to the data, up from around 12 to 14 million tonnes in 2019, according to industry sources.

Bunker sales at Zhoushan, China’s main bunkering hub, averaged around 400,000 tonnes per month in the first quarter of this year, and have increased to around 450,000 tonnes per month recently, according to the reports. FGE analysts.

This rapid growth came after China, the world’s largest oil importer, and not. 2 refiner, reduced export taxes on bunker fuels in early 2020 while granting producers VLSFO export quotas. This year, Asia’s leading refiner, Sinopec, offered its refiners financial incentives to increase the supply of VLSFO. Graph: Sea traffic off Zhoushan, China’s largest bunkering port:

China has also benefited from a dramatic drop in bunkering volumes over the past year in Hong Kong, which has imposed strict 14-day quarantines against COVID-19 on ships calling for bunkering, forcing some ships to shut down. refuel elsewhere.

As Hong Kong’s quarantine measures were finally relaxed on June 15 after nearly 11 months, Frankie Yick, a Hong Kong transportation lawmaker, said the city’s bunkering volume had since fallen by 70 % – of which a third went to Zhoushan while the rest went to Singapore, Taiwan, Philippines and Japan.

“They literally killed the volume of the port of Hong Kong,” said a second Singapore-based trader.

Hong Kong’s bunker sales will gradually pick up, but cheaper fuel costs in neighboring China could prevent a return to pre-pandemic average levels of 500,000 tonnes per month, trade sources said.

PRICE WAR

As the world’s leading bunkering hub and major oil trading center along one of the busiest shipping lanes, Singapore typically offers the lowest bunkering prices in Asia.

Singapore has also overcome the previous challenges of its lucrative bunkering dominance and remains the preferred port of call for ship operators for non-freight services such as bunkers, supplies, repairs and crew changes.

But as Chinese refiners ramp up production, bunkering costs at Zhoushan become the most competitive in Asia.

In three of the six months so far this year, VLSFO prices delivered to Zhoushan have been on average lower than those in Singapore.

In April, bunker prices delivered to Zhoushan VLSFO were on average $ 5.20 per tonne lower than Singapore – the largest discount on record since IMO-compliant fuel trade began in mid- 2019. Chart: Zhoushan bunker prices lower than Singapore as China ramps up activity in the marine fuel market:

“It’s just a price war,” said the senior trader when asked about recent price trends at Zhoushan, adding that the price wars were effective in the long run.

“(The) Chinese always have a long-term view … this is a national program led by the NOC (national oil company),” the trader said.

Singapore’s marine fuel sales fell to an 11-month low at 4.1 million tonnes in May amid heightened price competition and lower bunkering traffic, even as maritime trade world continued to rebound.

In the first five months of the year, Singapore’s bunkering volumes increased by only 2% compared to last year and in 2020 they increased by 5% to reach 49.8 million tonnes .

“Overall, the bunkering market in Asia is growing at a relatively faster rate than the rest of the world,” said Paravaikkarasu of FGE.

“Some of this growth is shared by emerging ports in China, leaving Singapore’s expansion smaller than it might have been otherwise,” she said.

Additional reporting by Chen Aizhu in Singapore; Editing by Florence Tan, Gavin Maguire and Kim Coghill