29-03-2018

India’s 2018 bunker sales likely to be steady as GST woes continue: industry sources

India’s bunker sales are expected to remain flat this year after falling by over 30% year on year in 2017, reflecting the impact of the country’s goods and services tax regime, which continues to hurt the competitiveness of marine fuel suppliers in the country, industry sources said this week.

India’s bunker sales stood at around 800,000 mt in 2017, some industry sources said.

The GST regime, which is imposed on various commodities with bunker fuel taxed at 18%, was implemented on July 1, 2017. Suppliers received a slight reprieve after the 18% GST on bunker fuel was reduced to 5% in October. However, it has still not helped restore volumes to levels traded in the pre-GST days.

“Pre-GST, we were doing about 15,000-20,000 mt/month. Although the GST [on bunker fuel] has been cut to 5%, our [sales] volumes have fallen by over 20%,” an industry source said. Under the old value added tax regime prior to the GST, bunker sales to foreign-going vessels in India were treated as a deemed export. Only some states taxed bunker sales to the vessels and the amount was negligible, in the range of 0%-5%, but mostly below 5%.

The 5% GST means that bunkering at India would still be about $17/mt costlier than what it was under the pre-GST regime and only those with cargo operations in India would be compelled to bunker at the country’s ports, another source said.

Ports such as Colombo and Trincomalee in Sri Lanka clearly benefited in the aftermath of the 18% India GST as price-sensitive buyers switched bunker calls there.

The Mumbai/Colombo 380 CST bunker fuel spread hit a high of $40/mt on July 24, S&P Global Platts data data showed. But since October, the spread has mostly narrowed. On March 27, Mumbai delivered 380 CST bunker fuel was assessed at $424/mt, $2/mt lower than Colombo delivered 380 CST bunker fuel which was assessed at $426/mt.

Still, some shipowners continue to bunker in Sri Lanka because of infrastructure and operational convenience, a bunkering executive said.

GLIMMER OF HOPE

In less than two years, the International Maritime Organization’s 2020 global sulfur cap for marine fuels will be implemented.

As high sulfur bunkers are replaced by marine gasoil or 0.5% sulfur fuel blends in 2020, India could end up supplying more distillates to ports such as Singapore and Fujairah instead of pushing them as much into the Atlantic Basin, industry sources said.

But ample availability of MGO in the country could also attract shippers looking for MGO to make bunker calls at Indian ports closer to the 2020 timeline, giving the local bunker industry a boost, some industry sources said.

Pricing economics and supply will be key factors to determine how much gets directed towards bunkering from the refineries, an industry source said. “Infrastructure at the country’s ports is being strengthened. So that will also help develop the [bunker] business,” he added.

India is forging ahead with its ambitious Sagarmala program to initiate a “Blue Revolution.” The term is used to refer to a vision of cutting logistical costs through improved and inter-linked waterways to facilitate transportation of goods for India’s domestic market.

As part of the program, the government has lined up plans to invest around $240 billion over a few years on a multiple-projects program including setting up six new major ports.

The country is also developing 111 inland waterways to reduce the cost of moving goods and passengers within the country. In areas where draft is shallow, dredging is being undertaken to increase it to 3 meters.

All these developments will bode well for bunkering, sources said.

Source: Platts

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