The final quarter of 2019 marked a massive decline of HSFO sales, as the industry transitioned into compliance of the IMO 2020 Sulphur Cap (IMO2020). In Singapore, the world’s largest bunkering hub, the bunker sale landscape saw significant change as the sale of high-sulphur fuel oil dropped tremendously in a matter of months. In contrast, the sale of low-sulphur fuels skyrocketed in the final quarter.
The first wave of IMO2020
Preliminary estimates from The Maritime and Port Authority of Singapore indicates that a total of 4,465 thousand tonnes were sold in December 2019, a 4% increase compared to December 2018 and the highest sale of bunker fuel sold in Singapore since January 2018. Sales of low-sulphur fuels, including LSFO and MGO LS, rose by 51% month-on-month in December to 3,127 thousand tonnes, compared to the 1,271 thousand tonnes of HSFO sold in the same month.
“The shipping industry has been riddled with market uncertainty in recent months, but the bunker sales in the port of Singapore provide one of the first readings as to how the industry has transitioned into compliance with the IMO2020 regulation. We have now surpassed the first wave of IMO2020 and hopefully the accompanying market uncertainty will diminish as we proceed into 2020,” says BIMCO’s Chief Shipping Analyst, Peter Sand.
The shift in bunker sales
In December, a total of 2,630 thousand tonnes of LSFO were sold, accounting for 59% of total sales. This is a massive change considering that it accounted for roughly 1% of total sales in the last couple of years. However, total 2019 bunker sales in Singapore were down 4% year-on-year, the lowest level since 2015.
The December figures provide insight into the IMO2020 transition and how the upcoming year might unfold. At the start of 2019, low-sulphur fuels accounted for a mere 8% of total sales compared with a jump to 70% in December. The massive uptick in market share of low-sulphur fuels illustrate the first wave of IMO2020, but BIMCO does not necessarily expect the low-sulphur to high-sulphur sales ratio to remain at these levels in the coming year.
While low-sulphur fuels have gained the largest market share, it is worth noticing how HSFO still accounts for 28% of total sales, driven by bunkers purchased for scrubber-fitted ships. Many of the scrubber-fitted ships are also the largest types of ships consuming relatively more fuel, which will surely facilitate stable demand for HSFO.
The bunker market in the port of Rotterdam, approximately one sixth the size of the Singaporean market, exhibited the same trend in November. Here, the sale of HSFO declined substantially while low-sulphur fuels rose to 50% of total bunker sales.
Transitioning into the new reality
The shift in bunker sales underlines the massive transition that the shipping industry has been faced with at the turn of the decade. Whereas bunker suppliers began their IMO2020 transition in the third quarter of 2019, many shipowners waited until the last minute to transit. The late transition has seemingly allowed shipowners to benefit from the declining HSFO prices in recent months, while also burning off the remaining HSFO left in the tanks.
The price of HSFO started to spike dramatically in 2019, driven largely by geopolitics and bunker suppliers preparing for IMO2020.
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“Almost from one day to another, IMO2020 has resulted in a massive increase in bunkering costs for shipowners and operators, costs which for many companies cannot be sustained for a prolonged period. Shipowners are trying to pass on the additional costs of bunkering to customers, but if the underlying supply and demand fundamentals are not balanced, their efforts may prove futile,” says Peter Sand.
While the industry adjusts to the new reality of IMO2020, another crucial part of the regulation is approaching hastily. On 1 March 2020, the high-sulphur fuel oil carriage ban takes effect, which prohibits ships without an exhaust gas cleaning system (scrubber) to even carry bunker fuels with sulphur content above 0.50%.