Asia/Pacific News
"Only the Big Boys Will Survive" in Singapore's Tight Credit Environment
A tightened credit outlook in Singapore following the recent collapse of OW Bunker may mean only large bunker suppliers will be able to continue trading, Reuters reports.
"Credit is so tight, only the big boys will survive," said one energy consultant.
The fall of OW Bunker, partly triggered by events at the company's Singapore subsidiary Dynamic Oil Trading (DOT), has led to renewed focus on counterparty risk among the state's bunker industry.
DOT agreed to "credit sleeve" large bunker purchases of certain other companies and was left exposed to an unsecured balance of $125 million.
Essentially, credit sleeving sees companies with strong balance sheets help to fund purchases for partner companies which would not have enough working capital to otherwise make the deals.
"Small traders, who used to rely on open credit or sleeving are the ones suffering the most," according to a Singapore bunker trader.
But very large companies with healthy balance sheets are still able to command good credit terms.
The likes of BP, Shell, Glencore, Vitol and Hin Leong could expand their market share as small companies founder.
Question of duration
Because of the size of Singapore's bunker market, the world's largest with almost 43 million tonnes sold in 2013, licenced bunker suppliers have until now used these smaller players as distributors.
According to the report, Singapore has up to 40 such distributors against 63 licensed bunker suppliers, and some expect the practice to continue in the long run.
"The underlying model makes money...it's still very much a relationship business," said a bunker trader.
"It all will have an impact but the question is about duration.
"Maybe we will see the likes of Shell increase delivered business."
Hong Kong has seen rising enquiries from bunker buyers as a result of the situation in Singapore.
