02-11-2018

Worldwide bunker fuel market struggling to settle after off-spec product alarms

The worldwide bunker market is struggling to settle after a series of shocks through 2018, with few signs of recovery as market headwinds look set to linger.

“The market is on edge,” one global bunker buyer said, referring to the aftermath of a serious off-specification bunker fuel incident, major physical suppliers consolidating or having significant financial issues and other headline news.

“There are no signs of improvement over the next 12 months,” a second buyer said. “[There will be] more competition and more price wars going on.”

Off-spec bunker fuel has had a significant impact on bunker markets this year.

The compound suspected to have caused the damage of more than 100 vessels worldwide this year is 4-cumyl-phenol, a chemical compound typically associated with the manufacture of epoxy resins. Its adhesive and binding qualities appear to have caused plungers and pumps to stick, leading to engine failure in some cases.

Market sources said 4-cumyl phenol may not be the only culprit.

The contamination issues, which originated in Houston, sparked a global contamination crisis as off-spec product made its way to other ports and a series of de-bunkering operations had to take place.

Problems with stability and compatibility are expected to plague the market as the International Maritime Organization’s 0.5% sulfur cap deadline of 2020 draws closer and thereafter, as blenders grapple with blending compliant fuel.

SUPPLIER SHAKE-UPS

Early in 2018, physical bunker supplier Aegean failed to meet the deadline to file its 2017 annual report to US regulators and subsequently said it might need to write off as much as $200 million owed to the company. This resulted in S&P Global Platts Ocean Intelligence downgrading Aegean’s credit rating.

Following this, Aegean largely stopped offering bunker fuel on the spot market, and many buyers were spooked by the likelihood that fewer sellers would mean higher prices.

Things looked up in July, when commodities trader Mercuria agreed to provide a $1 billion trade finance facility intended to support Aegean’s existing credit facilities, providing a reprieve to the company. Aegean has slowly returned to the bunker market. However, the scale of its operations has been reduced, a company source said.

Following this, in September, Hamburg-based bunker supplier Bomin Group said it would exit the bunker markets in Singapore and Antwerp.

Bomin has undergone a wave of restructuring over the past two years, closing offices in London, Athens, Tallinn and Madrid in 2016 and in Hong Kong and elsewhere in Asia last year. Further changes were announced at the end of June 2018 with the regional hub office in Dubai closing as well.

In mid-October, S&P Global Platts Ocean Intelligence cut the credit score of bunker supplier Macoil “on a precautionary basis” amid concerns over the apparent inactivity of the supplier’s barges at Gibraltar.

The score — “Credit a matter of trust in Principals” — is the third-lowest in the Ocean Intelligence range.

Macoil recently accounted for around 50% of supply in Gibraltar and in Malta.

Belgian bunker seller Oilchart, meanwhile, has said it would fully cooperate with a judicial investigation amid Belgian media reports that link it to sales of industrial waste from Curacao as bunker fuel in Europe. Sources said they are concerned that if the investigation’s findings are unfavorable to Oilchart, it could result in the company losing its trading license and could mean yet another player would exit the market.

Oilchart on October 22 rebuffed the allegations against it.

“The sold bunker fuel…complies with all applicable standards, which is moreover ensured by means of thorough testing and verification,” the company said in a statement. At the time, an Oilchart spokeswoman declined further comment, citing the ongoing investigation. Further requests for comment were not returned.

FUTURE CONCERNS

Bunker market participants are struggling to see light at the end of the tunnel.

“I am a bit concerned because no one on the trading or physical side [of the market] is making any money and that is not a good omen,” the second buyer said, emphasizing narrow margins as a result of the strong market.

There are many concerns over whether bunker companies will be able to access credit from banks as margins narrow and bunker prices rise as the tighter sulfur cap looms.

The ability of headline news and rumors to significantly drive prices in the market on a short-term basis is also a concern for buyers not only now, but also as 2020 and compatibility concerns approach.

“Now we need to look through the news and rumors and look to the fundamentals,” the first buyer said.
Source: Platts

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