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US’ World Fuel Services sees Q3 bunker fuel sales fall but marine segment profit rises

US-based World Fuel Services Corporation said late Thursday that its marine fuel sales in the third quarter fell by around 12.5% year on year to 6 million mt, taking the drop in its marine fuel sales for the nine months ended September 30 to 13.6% year on year.

This comes as weak global macroeconomics, competition among bunker suppliers, as well as a challenging outlook for the shipping industry which is grappling with weak demand, a supply overhang and upcoming environmental regulations, weighs on the market.
Despite declining sales volumes, the company’s marine segment generated a gross profit of $43 million in Q3, an increase of 41% year on year, primarily due to improved economics in the company’s core operations as well as seasonal activities, it said in its latest quarterly financial results report.

This represents the highest level of marine gross profit in a single quarter since 2015, Ira M. Birns, executive vice president and CFO, said in the company’s earnings call.

The significant year-on-year increase in gross profit was principally related to stronger margins driven by the sharp rise in bunker fuel prices in an increasingly constrained credit environment, he said.

“Additionally, we benefited from certain higher margins seasonal business during the third quarter,” he said.

“Looking ahead to the fourth quarter, we expect marine results to decline driven principally by the drop off in seasonal activity. Therefore, we anticipate our marine result for the fourth quarter that would be in line with or somewhat better than our second quarter result,” he added.

“We continue to focus on three pillars driving our value creation strategy: institutionalizing our cost management culture; sharpening our portfolio to ensure that we are allocating our capital and talent to develop durable profit streams that generate returns in excess of our cost of capital; and achieve aggressive organic growth,” Michael J. Kasbar, chairman and CEO, said during the same call.

The company’s marine business performed well following rigorous management of costs, Kasbar said.

“We sharpened our portfolio of market segments and locations, which enhanced margins and we expanded physical operations, which are reaching critical mass and driving organic growth,” Kasbar added.

Kasbar also said that he did not think the International Maritime Organization’s global sulfur limit rule for marine fuels had impacted the company’s results in Q3.

The IMO rule will cap the sulfur limit in marine fuels to 0.5% worldwide from January 1, 2020, from 3.5% currently. This applies outside designated emission control areas where the limit is already 0.1%.

The company is well positioned for the upcoming rule, Kasbar said.

“It is going to be a different type of market that will certainly benefit us because of the expertise we bring in terms of sourcing different qualities of fuels and making sure that it’s available,” he said.

Source: Platts

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