Zhoushan LSFO premiums plunge to seven-month low as Feb demand weakens

Premiums for Zhoushan-delivered 0.5%S bunker over FOB Singapore marine fuel 0.5% cargo values sank to a seven-month low of 92 cents/mt on Feb. 12, pressured by ample supply remaining for February and weak demand as the market returned from the Lunar New Year holidays.

S&P Global Commodity Insights data showed that the differential was last lower on July 2, 2024, when it dipped to a premium of 22 cents/mt.

There were signs of sustained selling pressure in the last two weeks following the extended holiday period due to ample stocks, with suppliers chasing thin inquiries in the market.

"[Zhoushan] demand [this week is] still not that great but I think better than last week. [We're] trying to do more volume at a lower price, heard we are way behind [for Feb sales]," a local bunker supplier said.

However, constraints on barge availabilities may cap how quickly suppliers can move volumes.

"Trying to do more Zhoushan [deals], but [there is] limited barge availabilities [on our side]. Only have one barge for HSFO, another for LSFO, so for us very tight there," the same bunker supplier added.

With February being a shorter month and muted trading activity across the festive season, traders are likely to offer more aggressively to capture inquiries and sell out surplus LSFO cargoes through March.

LSFO offers were heard in the range of $565-$585/mt, with delivery dates in the range of Feb. 15-20, but eventually, a 1,000 mt parcel traded at $565/mt for Feb. 16 delivery onwards. Platts assessed the grade at $566/mt on Feb. 12, down $3.06/mt day over day.

This came amid higher January and February production compared to December, the lowest in 2024 at 380,000 mt amid depleted export quotas.

"Refineries continue to produce, and logistics and sales have not caught up at the beginning of the year," a local bunker source said.

January LSFO output at China's refiners totaled 1.315 million mt, within the initial 1.3-1.35 million mt range projected, according to data from JLC, although this represented a 2.45% contraction year over year.

According to JLC data, February production is expected to fall to about 1.15 million mt due to the shorter month and less output from PetroChina. This is also slightly less than the 1.2 million-1.25 million mt initially projected, S&P Global Commodity Insights previously reported.

As early as the first week of February, some sources suggested the surplus supply may be shipped out of Zhoushan and Shanghai to manage inventory risk, although it was not clear eventually how much was moved or where these cargoes found a home.

For some suppliers, excess cargoes were likely shipped to northern Chinese ports to be sold at higher margins.

Traders around the world's largest bunker hub of Singapore anticipate tougher competition against Zhoushan hub in the coming weeks as trading activity gradually improves in China after the festive period, with much-lower premiums in China potentially diverting LSFO demand.

In fact, since January, some shipowners have already shifted their LSFO requirements around Singapore and Hong Kong ports to China to take advantage of the cheaper premiums.

Commodity Insights data showed that price spreads of Singapore's delivered marine fuel 0.5%S bunker versus the same delivered grade at Zhoushan have progressively widened to an average of $8.50/mt from February to date, from $2.80/mt in January and minus $26.43/mt across December.

This LSFO bunker spread between two hubs most recently rose to a near five-month high of $14/mt on Jan. 24.