Bunker Sales Decline in Russian Far East Market Has Levelled Off: Results of the Half-Year 1H 2017

The decline has slowed, but Far East bunker sales are half of 2014 levels. File Image / Pixabay

Foreign currency-denominated sales of bunker fuel oil in the Russian far east amounted to 1.92mn t in the first half of this year, largely flat from a year earlier.

Fuel sales levelled off in 2017 after falling throughout the two previous years. By comparison, in the first half of 2014 fuel oil sales were around 4mn t, or twice as high. The decline slowed down as a result of a rebound in demand from foreign buyers, which was caused partly by the facilitation of fuel sales procedures for transit vessels.

In accordance with the resolution of the Eurasian Economic Union (EAEU) that took effect in December last year, vessels calling at Russian ports less than once a month may buy fuel in the amount equal to the volume of the empty part of the ships' bunker fuel tank. In addition, it is no longer required to perform cargo handling operations before buying fuel.

An increase in the discount on HSFO-380 fuel in the Primorye ports to Singapore price assessments also underpinned the bunker market.

Refiners look at the bunker market

The stabilisation of fuel oil sales in Primorye was also driven by the decision of some refiners to reduce exports by moving their products to the bunker market. For example, this was done by Rosneft, partly because of the changed quality of its fuel oil owing to refinery upgrades.

The retrofitting of the Angarsk and Komsomolsk refineries resulted in a higher yield of cracked fuel oil, which were then re-oriented to the bunker market. Rail shipments of fuel from Angarsk increased to 434,500t the first half, rising by 272,400t from a year earlier, while shipments from Komsomolsk-on-Amur grew by 113,500t to 198,700t.

Rosneft-Bunker, an arm of Rosneft, increased sales of fuel oil to foreign shippers by 69,4pc to 584,400t. The company ranked second in fuel oil sales, leaving behind Gazpromneft Marine Bunker.

The top seller in the first half of the year still was IPC-Bunker, a business unit of the Independent Petroleum Company (IPC), the operator of the Khabarovsk refinery. IPC-Bunker's sales of fuel oil grew by around 11pc to 636,700t in the first half, although some traders expected a decline in foreign currency-denominated sales after the US imposed sanctions on IPC.

Kem-Vlad Petroleum, which started operations in early 2016, also boosted its sales in US dollars by 112,800t to 156,800t. Kem-Vlad Petroleum sells mostly fuel oil sourced from Anzhersk Oil and Gas Company's teakettle refinery in the Kemerovo Region, which increased its crude throughput in January ― June to 525,000t, a rise by 16pc from the same period a year earlier. Shipments of fuel oil from this refinery to Primorye grew by around 29pc, to 212,800t. The product was delivered to the Vostokbunker terminal for Vladportbunker, Niko-Oil DV, Fuel and Bunkering Company, and to the Nakhodka ship-repair yard.

Exacting buyers

Despite the increased number of transit vessels calling at Primorye in the first half of the year compared with a year earlier, ship-owners tightened the requirements for bunkering operations, traders say.

"After a few mergers of shipping companies, buyers seek to cut freight costs on their routes. They want a discount of at least $55/t to Singapore prices. Besides, the bunkering process should take 36 hours rather than 49 hours as before", a bunkering company representative said.

In 2016 - 2017 three major Japanese shipowners - Nippon Yusen Kaisha (NYK Line), Mitsui-OSK and "K" Line - merged to form Ocean Network Express (ONE). Other mergers that took place earlier are CMA CGM and APL, COSCO and CSCL, Maersk Line and Hamburg Süd as well as Hapag-Lloyd and UASC.

Five major shipping companies are expected to control around 60pc of the world's container fleet by 2021. Maersk Line, MSC and CMA CGM will account for a total of 40pc. In 2005 the top five controlled around 35—40pc of such vessels. The mergers will drive competition in the market, resulting in tougher business conditions for small carriers.