Wartsila flags up 2019 scrubber demand slowdown

Finnish marine technology firm Wartsila said it received fewer orders for exhaust gas scrubbers last year than in 2018, as shipowners postponed decisions to invest in the technology to later this year.

Scrubbers allow ships to keep burning 3.5pc sulphur fuel oil without falling foul of the International Maritime Organisation's (IMO) new 0.5pc sulphur cap, which came into effect on 1 January.

Fuel price spreads were "supportive of investments" in scrubbers last year, but a lack of shipyard capacity to install them and uncertainty around the availability of high-sulphur fuels at various ports have delayed investment decisions, Wartsila said.

Wartsila is the world's biggest scrubber manufacturer. Its order intake for marine equipment and services shrunk by 11pc in 2019 compared with 2018, when scrubber manufacturers received a flurry of orders during the summer.

"Demand for scrubbers declined from exceptionally high levels in the previous year, as a result of uncertainty related to the price and availability of bunker fuels," Wartsila chief executive Jaako Eskola said.

Shipowners were waiting until the first quarter of 2020 to gauge whether the fuel price spreads would warrant scrubber investments, Wartsila said, reiterating an observation it made last year.

The price spreads between low-sulphur and high-sulphur marine fuels have been volatile across major bunkering hubs in recent months, spiking at the end of last year as shipowners rushed to bunker IMO-compliant fuel before the sulphur cap deadline.

In Fujairah, the price of 0.1pc sulphur marine gasoil (MGO) peaked at a $540/t premium over 3.5pc fuel oil on 24 December and fell to a low of $384/t yesterday. The premium of 0.5pc sulphur fuel oil over 3.5pc fuel oil rose to a high of $497.50/t on 30 December before dropping to $273.50/t yesterday.

The price spreads have been particularly wide in Fujairah, which is naturally long on 3.5pc fuel oil compared with Singapore and Rotterdam. In Singapore, the premiums for MGO and 0.5pc fuel oil over 3.5pc fuel oil reached highs of $371.50/t and $370.50/t on 2 January, respectively, before falling to $234/t and $231/t yesterday. In Rotterdam, the premiums of MGO and 0.5pc fuel oil peaked at $329/t and $309.50/t on 30 December, and had fallen to $198/t and $183/t by yesterday.

Lack of shipyard space for scrubber retrofits pushed installation times to over six weeks in December. This — combined with high freight rates at the end of last year — prompted shipowner DHT to postpone scrubber retrofits on six of its very large crude carriers (VLCCs). The firm currently has 12 ships with scrubbers in operation.

Several European bunker suppliers stopped offering 3.5pc fuel oil in the weeks leading up to 1 January in order to free up more storage and barge tank space for 0.5pc fuel oil. At least two suppliers in the Amsterdam-Rotterdam-Antwerp (ARA) hub stopped offering 3.5pc fuel oil, one in Skaw, one in Las Palmas, two in the Gibraltar Strait ports, two in Malta, two in Piraeus and one in Istanbul. Other suppliers in these ports have converted most of their barge tanks to hold low-sulphur fuels.

A large number of vessels are currently out of operation for scrubber installations. When these vessels hit the water again, demand for high-sulphur fuel oil is set to rise.

Some suppliers will reassess demand for 3.5pc fuel oil in mid-February to determine whether or not "to dirty up" their bunker barge tanks again to accommodate high-sulphur fuel. Around 3,800 vessels will have scrubbers in operation and on order by the end of 2020, up from 3,000 in 2019, according to shipping classification body DNV GL.

By Erik Hoffmann