European shipowners, suppliers’ marine fuel talks stall on pricing: sources
Time：2014-08-11
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Shipowners, who are already envisaging significant cost increases as result of the higher-quality fuel required, are in disagreement with suppliers on the pricing basis as well as the price differential for potential long-term supply contracts starting in 2015.
The new regulation from the International Maritime Organization to lower the sulfur cap for bunker fuel in ECAs to 0.1% from 1% comes into effect on January 1, 2015.
However, several shipowners remain unsure about which pricing basis to use given several options which may or may not become the industry standard.
Straight discounts to the new ICE low sulfur gasoil 10 ppm futures contract, which is due to replace the legacy ICE 0.1% gasoil futures contract in February 2015, have been offered as well as discounts to current low sulfur marine gasoil assessments.
The pricing basis is an essential component of the outright price, fundamental for hedging.
Difficulty predicting prices is leading several shipowners to delay fixing their 2015 fuel supplies, potentially running the risk of allocating most of their fuel supplies on a spot basis next year, including container shipowners which have predictable trade locations and typically negotiate their fuel supplies on long-term contracts.
Container ships typically ply planned trading routes for the year, while tankers, which are subject to oil spot markets and have more variable routes, allocate more of their fuel supply purchases on spot.
“It’s not worth committing oneself to contracts. For us, we made an analysis, we plan to put 20-30% on contracts and buy the rest on spot after 2015,” said one container-ship owner.
“I think everyone is playing it by ear at this stage. Regarding how they’re going to price it, I am hearing some trading companies just add higher premiums and offer contracts. That’s a bit risky I think, bit of a gamble… from our side we will just wait and see what the spot market holds,” said a shipping source.
At the moment, shipowners have been shown new ECA compliant marine gasoil at a discount of approximately $20/mt to low sulfur marine gasoil, according to market sources.
A second issue facing the shipowners is the variability of the specification guaranteed by different fuel suppliers, which subsequently affects quality premiums.
Companies such as Neste, ExxonMobil and Litasco have all released new marine fuel products that meet the ECA requirement but differ significantly in density, flash point and pour point. This is complicating the contract negotiations.
“It was expected to be a difference of $10 to $15 more per ton for the ship-owners. For the suppliers — since they’re still not sure on the spec — they’re pricing their offers at high levels and all of sudden shipowners find themselves with unpredictable spec supplies and even higher prices than anticipated,” said a second trader.