CHINESE marine fuel suppliers have signed up short-term deals to buy compliant low-sulphur fuel from Shell, Uniper and US commodities trader Freepoint before the new United Nations rule takes effect on January 1, Reuters reports.
Soaring demand - including from China - and logistical constraints has pushed prompt-delivery to as high as $30-$40 per tonne above standard bunker prices in Singapore, versus a $20-$30 per tonne discount just weeks ago.
While China's state refiners have pledged to produce a combined 14 million tonnes of the fuel for 2020 that complies with the tighter rules set by the International Maritime Organisation (IMO), Beijing has not yet rolled out much-anticipated tax breaks that will encourage refineries to ramp up domestic output of the very low-sulphur fuel.
Instead, companies like Chimbusco, PetroChina and Sinopec have procured supplies from the international market to cover demand up to the end-March, executives at the three firms said.
The buying pattern comes as world's shipping complies with IMO rules to run ship engines using very low sulphur fuel of 0.5 per cent sulphur content, down from the current 3.5 per cent.
"China continues to buy low-sulphur fuel in bulk from Singapore as local tax legislation deters Chinese refiners from selling into the bunker market," consultancy Energy Aspects said in a note this week.
Beijing has been widely expected to announce by end-2019 a waiver of a CNY1,218 (US$177) per tonne consumption tax and offer rebates of the 13 per cent value-added tax currently levied on fuel oil to allow the country's refiners to economically produce very low sulphur fuel oil (VLSFO).
The Chinese companies are importing 500,000-700,000 tonnes of low sulphur fuel per month on average from November to January, diverting limited supplies from Singapore, the world's top bunkering hub, three Singapore-based traders said.