Bunker fuel supply in Japan is expected to tighten in November as demand is rising, industry sources said in the week started Oct. 24.
The supply of both marine fuel 0.5%S and high sulfur bunker fuel has already started to tighten, bunker traders said.
“We cannot offer spot fuel,” said a fuel oil trader.
The fourth quarter is typically the demand season for bunker fuel in the country.
“Ships arriving in Japan after mid-November load bunker fuel for two voyages,” said a source at a shipping company.
Japan will observe a holiday week around the New Year’s Day, when bunkering operations are suspended. Ships that are scheduled to visit the country around that period tend to take bunker fuel for two voyages, industry sources said.
In addition, current high freight rates are encouraging shipping companies to maximize the utilization of ships, avoiding deviation for bunkering. This is also raising bunker demand in Japan, bunker traders said.
Japan’s bunker prices are typically one of the highest in Asia. Therefore, ships minimize bunker fuel loading in Japan and go to other ports where cheaper bunker fuel is available, deviating their routes.
“Freight rates are very strong mainly for dry bulk. Bunkering during cargo loading and discharging is more efficient. Otherwise, we will waste half a day, or one day,” said the shipping source.
The S&P Global Platts T4 Capesize bulk carrier index, the average of freight rates on four representative routes, has risen steadily to date in 2021 to average $41,010/d in the third quarter, up from $14,367/day in the first quarter, and has averaged higher again at $55,945/d during Oct. 1-28, Platts data showed.
Utilities seek fuel oil
Meanwhile, Japanese power companies have started to seek fuel oil to prepare for winter electricity demand, market sources said.
Market sources said high sulfur fuel oil users are the first to come to the market, rather than low sulfur fuel oil users.
The bunker industry has to compete with power utilities for limited fuel oil supply, but Japanese refiners prioritize power companies when supply is tight, the sources added.
“For refiners, selling fuel oil to power companies makes much more sense than selling it to bunker market as the prices for power companies are much higher,” said a bunker trader.
The competition is happening for barge supply as well.
Barge supply in western Japan is already tight while higher fuel oil demand from power companies makes the situation more serious, said industry sources.
“If a ship is available only for one day for bunkering in west Japan, it is difficult to find barges,” said the shipping source.
Supply unlikely to rise
Even with tightening supply, there were few chances for refiners to raise their bunker fuel production because of higher middle distillate crack spreads.
The crack spread for middle distillates has firmed recently. The November Singapore 10 ppm sulfur gasoil swaps-Dubai crude spread stood at $13.65/b on Oct. 28, while the marine fuel 0.5%S-Dubai crude spread came in at $6.35/b (mt to barrel conversion rate: 6.8), Platts data showed.
“Refiners don’t want to increase fuel oil production,” said a bunker trader.