SINGAPORE, May 12 (Reuters) - China's Sinopec Corp is offering its refineries incentives to boost their output of very low sulfur fuel oil (VLSFO), three sources with knowledge of the matter said, to grab a bigger share of the fast-growing marine fuel market.
The top Asian oil refiner is crediting its refineries 150 yuan ($23.35) for every tonne of VLSFO they produce, roughly 5%of the spot marine fuel quoted at east China's Zhoushan, the country's top bunkering hub, they said.
The scheme, which started this year, is aimed at motivating its plants to produce more VLSFO as a domestic diesel supply overhang idled some of the state oil firm's refining capacities, the sources said.
Sinopec declined to comment.
VLSFO has sulfur content of 0.5% or lower to meet the International Maritime Organization's emission limits for marine fuel.
"With the massive diesel surplus in the domestic market, Sinopec does not need to process that much diesel itself so why not make use of the processing capacity to boost marine fuel?" said one senior source.
Sources declined to be named as they're not authorised to speak to the media.
The scheme is seen helping Sinopec capture a larger slice of China's bonded bunker market, which supplies ships plying international voyages. Sales of the ship fuel is booming alongside the Chinese economy.
The scheme started early this year, said a second source, though it is unclear how long it will last.
Chinese traders estimated Sinopec had in the first four months of 2021 produced some 2.5 million tonnes of VLSFO for the bonded market, up nearly 50% from a year ago.
Sinopec's bonus scheme has heated up competition in Zhoushan, where ex-wharf bunker prices over the past few weeks have recorded a rare discount to that of Singapore, the world's top bunkering centre.
"Already China's largest marine fuel producer, Sinopec's strategy will keep weighing on the Zhoushan market," said a trading manager with a rival Chinese supplier.
($1 = 6.4247 Chinese yuan renminbi)
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