Bunker traders need credit for IMO 2020

Bunker trading firms could need higher credit facilities to deal with increased fuel costs beyond 2020, and said payback times could shorten.

By some estimates the differential between marine gasoil (MGO) and high-sulphur fuel oil (HSFO) could be as high as $350/t by 2020, when the International Maritime Organisation (IMO) 0.5pc sulphur cap comes into force. Bunker prices will go up for 1-2 years after that, which will lead to higher credit exposure for traders, Ocean Connect credit manager Can Ertem said at the Mediterranean Bunker Fuel Conference.

Bunker traders will increasingly compete with gasoline and jet fuel traders for gasoil supplies, said Bunker Holding's head of physical supply Carlos Torres. Credit lines are 3-5 days in gasoline and 10 days in jet, compared with 30 days in the bunker industry.

"There will be pressure from oil majors to reduce credit lines from what we have today," Torres said.

Bunker trading firms' credit lines are already stretched after years of heavy lending and low profit margins. Several have struggled lately. Trading firm Bomin in September said it was closing its bunkering operations in Singapore and Antwerp, two of the world's biggest hubs, citing "intense competition and low margins" in major ports.

Bomin global head of credit Paul Millar said higher bunker costs and consequent pressure on credit is the main concern, but it is unlikely there will be a global change in credit lines.

"The industry has got hooked on 30-plus days. It is going to be incredibly hard for suppliers and traders to work on shorter terms," he said.

A third of bunkers is financed by traders today. When fuel becomes 30-40pc more expensive, this will put enormous pressure on finance, said BMS Bunkering credit director Bjarke Staal.

"If the buyer needs 30 days, but the supplier cannot handle more than 10 days, who is going to finance the remaining 20 days," said Staal. Mercuria's head of structuring David Gallagher said there is "a certain degree of fatigue in the banking industry towards the shipping industry… in some cases they have credit extensions to shipowners whose loan-to-value ratio is in well excess of 100pc now."

"The role of the trader will be more important than ever, because they will allow higher credit lines," said bunker trading firm Transoil managing director Kostas Ladis.