(Repeat of story published late on Thursday)
(Adds more details)
By Yaw Yan Chong
SINGAPORE, May 24 (Reuters) - Morgan Stanley (MS.N) will be the first investment bank to lease a fuel oil floating storage unit (FSU) in Asia, as it vies with major players for the Chinese and marine fuels markets, industry sources said on Thursday.
The 240,000-tonne FSU is slated for operations within the next month and will help the U.S. bank, which entered physical fuel oil trading three months ago, to become a major East-West arbitrageur and compete against the likes of BP (BP.L), Vitol and Glencore.
Morgan Stanley, which has dominated energy derivatives trading for a decade, is close to sealing a deal with Titan Petrochemicals Group to lease the Very Large Crude Carrier (VLCC) Titan Chios for one to two years, sources close to the deal said.
When contacted, Barry Cheung, chief executive of Hong Kong-listed Titan (1192.HK), declined comment. Morgan Stanley’s spokesman could not be reached for comment.
“Given their size and resources, Morgan Stanley can certainly become one of the biggest players in the market. The market is certainly watching developments at their end with a keen eye,” a Singapore-based Western fuel oil trader said.
The tanker, to be deployed off Malaysia’s southern Tanjong Pelepas port, is currently in the dry dock for repairs and retrofitting, which are due for completion by June or July.
It was previously leased to Glencore, which has since moved its operations to another Titan tanker, the sources said.
Rental rates for commercial floating storages are at $3.00-$3.50 per cubic metre a month, about 15-20 percent below rates for landed storage.
Traders expect Morgan Stanley to trade the physical fuel oil market like an East-West arbitrageur: bringing cargoes from the West and blending and selling them to other traders in Singapore.
“It doesn’t seem likely that Morgan Stanley will sell much volume directly at the start because it will probably have credit issues with some bunker resellers and the Chinese middlemen, given that they have always been conservative,” another trader said.
Morgan Stanley is the only investment bank that trades all physical oil products in Asia, taking up 50,000 cubic metres of clean oil storage, mainly for gasoline, from German operator Oiltanking on Singapore’s Jurong Island about two months ago.
It has been active in the physical middle distillate market, trading gas oil and jet fuel for several years.
Rival Goldman Sachs (GS.N) is the only other investment bank that has been regularly active in the Asian physical market, trading mostly naphtha.
Others such as Merrill Lynch MER.N, JP Morgan (JPM.N), Deutsche Bank (DBKGn.DE) and South Africa’s Standard Bank are active in the fuel oil derivative market, but has yet to show any interest in the physical market over the past four to five years. Market sources said Morgan Stanley had been seeking fuel oil storage since the beginning of the year. But landed storages, including new ones that are coming up within the next one year, are fully taken up despite capacity having more than doubled, forcing players to turn to FSUs.
Including the Titan Chios, there are a total of 2.35 million tonnes of floating storages offshore Singapore and Malaysia, with Titan accounting for the majority at 767,000 tonnes, or 32.6 percent of the total.
It has two other FSUs, the Titan Gemini and the Titan Scorpio, operating offshore Malaysia. One is leased to Glencore and the other used for its own trading purposes.
Titan will add one more VLCC by the end of the year, bringing its total capacity to about 1 million tonnes.
Other trading houses operating FSUs include Vitol, Koch Refining and Chemoil CHEL.SI, all of which also have landed storage, while Trafigura operates out of an Floating, Storage, Offloading (FSO) unit.
The floating storages offer additional storage capacity to traders, easing the demand crunch for such facilities onshore.