Demand drop pulls Rotterdam HS380 price down

Falling demand for high-sulphur marine fuel oil in the port of Rotterdam as shipowners prepare for the IMO 2020 sulphur cap has pulled its price down relative to Ice Brent and low-sulphur marine fuel products.

While there has not been a drop in the number of enquiries from shipowners for high-sulphur 380cst marine fuel oil (HS380) — the most bunkered fuel in Rotterdam — the volumes have been smaller. A supplier's typical fuel enquiries used to be for 2,000-3,000t for HS380, but are now only around 400t. As a result, the price of HS380 fell by 11pc between 2 October and 5 November, from $299.25/t to $265/t.

The price drop of HS380 compares with a 9pc rise of the front-month Ice Brent price over the same period, from $57.43/bl to $62.51/bl. Price movements for HS380 usually track Ice Brent over time, but in the past month the two have dislocated as demand for high-sulphur fuel has slowed.

In the third quarter of the year, total marine fuel oil sales in Rotterdam dropped by 13pc on the year to 1.69mn m³. Marine fuel oil sales dropped quarterly as well, falling from roughly 1.8mn m³ in the second quarter of 2019.

The Rotterdam sales numbers included both high and low-sulphur marine fuel oil. High-sulphur marine fuel oil demand has been in steady decline from the third quarter, while demand for low-sulphur marine fuels, and 0.5pc sulphur fuel oil in particular, has risen, according to local suppliers.

Shipowners are trying to use the high-sulphur fuel before the end of December to avoid having large quantities onboard that will need to be debunkered to comply with the International Maritime Organisation's (IMO) 0.5pc sulphur cap. Most shipowners are expected to start buying IMO-compliant fuel in November and December to allow enough time to flush through the high-sulphur fuel left in ships' fuel tanks. Leftover high-sulphur fuel in the tanks could push the measured sulphur content above 0.5pc, making it non-compliant. Shipowners are buying just enough high-sulphur marine fuel to last until December, and may top up with smaller volumes if they run out.

While shipowners increasingly switch to buying low-sulphur marine fuels, the price gain of 0.5pc sulphur marine fuel oil has been less than half that of Ice Brent since Argus started assessing the new grade in Rotterdam/Antwerp on 2 October. Between 2 October and 5 November, the Rotterdam/Antwerp price for 0.5pc sulphur marine fuel oil rose by 4pc, from $491.75/t to $512/t, while Ice Brent went up by 9pc. A supply overhang of 0.5pc sulphur fuel oil has kept a lid on its price gain, according to a supplier in Rotterdam.

Third-quarter marine gasoil (MGO) sales in Rotterdam also increased on the year. The roughly 370,000m³ sold in the third quarter of 2019 was a 16pc rise from the third quarter of 2018.

And 0.1pc MGO will be compliant with the sulphur cap. Ships that already run on MGO to comply with regulations in the 0.1pc sulphur capped Emission Control Areas in the North Sea and the Baltic Sea will not need to start preparing for a switchover from high to low-sulphur marine fuels on the same scale as those switching from HS380 to 0.5pc sulphur fuel oil.

The price of MGO gained by 1pc between 2 October and 5 November, from $563.75/t to $568.25/t.