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China’s emission regulations spur increase in LSMGO volume uptake

The Chinese bunker fuel market saw a rise in low sulfur marine gasoil volume range and size following Beijing’s imposition of a 0.5% bunker fuel sulfur limit from January 1 along its entire coastline, for all vessels sailing within 12 nautical miles of the coast as well as when berthing.

Since November, low sulfur marine gasoil demand has almost doubled in East China, and is up about 30% in North China, market sources said.

“Volumes used to be around 25,000 mt/month. Since November its been close to 40,000 mt/month,” a China-based supplier said.

The volume required per order has also risen.

“Inquiries for LSMGO are at a higher range. Volumes have gone up by 50% to even 100%,” a China-based trader said.

“With each order now asking 20-30 mt more, it all adds up to a substantial amount. Range and size is also getting bigger at around 50-100 mt, with some orders even hitting 300 mt,” a Hong Kong-based trader said.

In Hong Kong, three out of the four majors who own tank storage space were heard to have ran out of stocks this week.

“Gasoil stock level [is] quite low till mid-January,” a Hong Kong-based supplier said.

IMPEDIMENTS TO LSMGO SUPPLY

Hardware and facility constraints are the main impediments to supply, rather than the availability of LSMGO. Larger storage tanks and barge capacity are required to meet the rise in demand.

“Barges used to carry 30-50mt per order. Now orders range 100-500 mt,” the China-based supplier source said.

“Currently, some spot orders are catered for with temporarily chartered barges. We will need to wait for after the dry docking to make modifications to upgrade barge capacity,” he added.

LSFO DEMAND HAMPERED BY LACK OF AVAILABILITY

While prices of low sulfur fuel oil are lower than LSMGO, there are prevailing concerns on the feasibility of using LSFO as it is not yet widely and readily available.

Currently, LSFO for bonded bunkering is not produced by China’s local refineries, but is imported in limited amounts from Singapore, Malaysia and the Middle East, and stored in tanks in China’s major ports such as Shanghai and Zhoushan.

Supply of LSFO in Asia is limited to 200,000-300,000 mt/month out of 4 million mt/month of bunker demand in Singapore, market sources estimate.

“When availability is not stable, if ships should come back to China and find that there is no avails, or the next destination has no LSFO, they will need to clean up their tanks to avoid fuel incompatibility with LSMGO,” a China-based trader said.

Due to these concerns, LSFO demand has not been significant thus far.

“We haven’t seen any LSFO demand in Q1,” a Hong Kong-based trader said.

Still, sources say LSFO demand will increase later in the year, as supply becomes more widely available.

From August, Chinese oil giant Sinopec is planning to start the first commercial supply of LSFO for the bunker fuel sector from its coastal refineries.

“So far, LSFO demand is not strong. However, it will go up,” another Hong Kong-based trader said.
Source: Platts

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