China to Supply 6% of Global Bunker Demand

A growing share of the world's bunker fuel will soon come from China. File Image / Pixabay

China has set out its plans for an expanded role in the global bunker market at the launch of its low sulfur fuel oil futures contract in Shanghai.

The country's refiners can now produce 18.1 million mt of very low sulfur fuel oil (VLSFO), Reuters cited PetroChina Vice President Zhang Tong as saying Monday -- equivalent to just over 6% of total global bunker demand.

China will be self-sufficient in low sulfur bunker fuel, Zhang said.

Growing Ambition

The announcement underlines how changes in China's tax system this year have set the stage for its ports to take away some market share from Singapore and other bunkering locations in the region.

Beijing has applied a long-awaited rebate on value added tax on fuel oil from February this year, incentivising domestic refiners to produce very low sulfur fuel oil in large quantities.

Exports in the form of bunker sales at Chinese ports have already begun, and prices at Zhoushan have slipped relative to Singapore since then.

Discount to Singapore

VLSFO prices at Zhoushan have been at an average discount to Singapore's levels of $4.16/mt in the second quarter so far, according to Ship & Bunker prices, down from a premium of $20.56/mt in the first quarter.

Chinese fuel oil output surged by 68% on the year to 3.09 million mt in April, according to data from the country's National Bureau of Statistics.

Monday's launch of the marine fuel futures contract on the Shanghai International Energy Exchange will also boost China's influence in the bunker market. Reuters cited market sources as saying with few competitors, the contract stands a fair chance to grow into an Asian benchmark for shipping fuel.