December 23, 2013 / 6:16 AM / 6 years ago

Asia Fuel Oil-Jan arb flows may fall 13 pct on higher freight rates

SINGAPORE, Dec 23 (Reuters) - Fuel oil shipments into Asia are expected to slip to a two-month low in January as higher freight costs make it difficult for traders to break even, hampering the flow of the fuel from the West, a survey of shipping and trade sources shows.

Of the 4.21 million tonnes expected to arrive in Asia in January, 3.12 million tonnes or 74 percent will land in Singapore, down 15 percent from December.

China and South Korea will receive 670,000 tonnes and 420,000 tonnes, respectively, Reuters analysis of shipping data showed. The volumes into North Asia will be steady to slightly lower than December’s 1.18 million tonnes.

Cash differentials for the 380-centistoke fuel oil grade in Singapore, the world’s largest fuel oil trading hub, flipped into a premium on Dec. 17, after trading at discounts over Dec. 4-13 as traders started pricing in possibly lower arbitrage volumes, Reuters data showed.

The final count for January could slip even further as the current estimate includes about 550,000 tonnes of fuel oil that has yet to load.

While the window to fix shipments from Europe will be open until the end of the month, arbitrage economics are firmly shut due to high freight rates and a narrower east-west spread, trade sources said.

The price to hire a Suezmax for the voyage from either the U.S. Gulf Coast or the Caribbean into Singapore, for instance, has risen to about $4.75 million, up from about $3.5 million two weeks ago, said a source at a Western shipbroking firm.

“The Suezmax market is still strong due to a firmer West African tanker market,” he said.

More voyages from the United States or Europe towards West Africa will reduce the supply of vessels available for East-bound routes.

More than half of the arbitrage volumes, or 2.34 million tonnes, will come from the Americas and Caribbean and will likely be of high viscosity and high density, trade sources said.

Of the remaining volumes from Europe, 760,000 tonnes will load from the Black Sea, 500,000 tonnes from the Baltics, 400,000 tonnes from Rotterdam and the United Kingdom, and 210,000 tonnes from the Mediterranean, shipping data showed.

These will contain a mix of straight-run fuel oil and bunker grade fuel oil.

DECEMBER ARRIVALS

Asia will receive 4.865 million tonnes of fuel oil arbitrage volumes in December, up 11.5 percent from initial estimates of 4.365 million tonnes, Reuters shipping data showed.

This was due to slippage from November, including a Zhoushan-bound very large crude carrier Cosbright Lake, and two Singapore-bound Suezmaxes, Almi Navigator and Almi Explorer. (Reporting by Jane Xie; Editing by Richard Pullin)

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