27-05-2016

Too many marine fuel suppliers, too little demand causing weak margins: panel

Marinefuel

Too many marine fuel suppliers and shrinking demand from a shipping sector that has not recovered from the 2008 financial crisis have led to weak bunker fuel margins for suppliers throughout the Americas, panelists at a maritime sector conference said.

Global bunker fuel demand has not rebounded from the financial crisis due to a weak shipping sector, increased use of distillate fuel and more-efficient ships.

“The amount of bunkers being purchased today is probably the same as three or four years ago,” Adrian Tolson, senior partner at consultancy 20|20 Marine Energy, said at the Petrospot Maritime Week Americas conference in Fort Lauderdale, Florida.

The pie is the same size, but the slices have gotten smaller.

“There are too many people trying to sell bunkers to shipowners,” Tolson said.

This sentiment was echoed in recent earnings calls.

Aegean Marine Petroleum Network Inc. reported record quarterly fuel oil sales volumes but their gross spread was headed in the opposite direction. The company’s quarterly sales volumes were at 4.2 million mt, up 44.5% from a year ago, while the gross spread was at $17.6/mt this quarter compared to $24.1/mt in the same year ago period, according to the company.

“Low oil prices resulted in increased competition which was an adverse impact our gross spread,” said Aegean President Nick Tavlarios in the quarterly earnings call.

Low prices enable weaker competitors to have more working capital, which in turn allows them to remain in business longer than they otherwise would have, Tavlarios said.

Aegean will likely see volumes moderate to around 4 million mt in Q2, but the company’s objective is to balance volumes with spreads to increase profitability, he said.

Another major global marine fuel supplier, World Fuel Services, reported in April a 27% decline in gross profit for the first three months of 2016 even as fuel sales were flat, which was attributed to weakness across the marine transportation market.

According to S&P Global Platts data, the Houston bulk-to-retail spread — the difference between Houston IFO 380 ex-wharf retail bunker fuel and US Gulf Coast HSFO, the typical blendstock for regional bunker fuel — has essentially been flat in 2016 to date, averaging just 1 cent/b. That is down significantly from $2.25/b over the same time in 2015 and about $3/b in 2014.

The situation is similar in New York, where the bulk-to-retail spread has averaged $2.65/b in 2016 compared with $4.15/b in 2015, Platts data show.

GEOGRAPHIC DIVERSITY

Global bunker fuel demand will rise in the future but not in the Americas, consultant Nigel Draffin said. Asia, the Middle East and Africa will see increased demand in the future.

“The Med, Europe and South America will be flat,” Draffin said. “North America will shrink.”

The major US ports of Houston, New Orleans and New York are seeing fewer inquiries, said Brian Coyne, Americas managing director at global bunker fuel supplier KPI Bridge Oil. However, Los Angeles-Long Beach appears to be growing.

The change global trade makes it important to be in many different locations and Aegean is in 32 different markets, up from just three in 2004, according to a company slide.

“Certain markets are offsetting declines in others and we will continue to adjust our resources to align with favorable trends and shifts,” Tavlarios said.

Source: Platts

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