LSFO CFR Japan premium to begin decline as winter demand tapers: sources
Singapore (Platts)--29Jan2013/537 am EST/1037 GMT
The spot premium for low sulfur fuel oil cargoes to be delivered into
Japan, over Mean of Platts Singapore 180 CST high sulfur fuel oil
assessments, will begin to slide as peak winter season demand abates and
buyers minimize stocks prior to the end of the financial year in March, trade
sources said Tuesday.
The deals for two 40,000-45,000 mt LSFO cargoes that one of Japan's
largest importers have concluded for March delivery -- the only deals for
March so far -- have been at a premium in the low $120/mt levels, said a
LSFO cargoes for delivery into Japan for the first half of February were
concluded at premiums around the mid-$120/mt levels -- in some cases around
$130/mt or above -- up from $115-120/mt at which deals were concluded for
second-half January delivery and $105-110/mt for first-half January, traders
The premiums for second half February delivery product inched lower --
to around the $120/mt levels -- relative to first half February with the
impending arrival of Western arbitrage cargoes in the latter half of next
month, as compared to tight availability in the first half, said traders.
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"We had concluded deals to take cargoes from Africa for February
[delivery] back in December itself ... we're receiving two [40,000-45,000 mt]
cargoes and both will arrive in second half February," a source at Japan's
largest refinery said Tuesday.
Even as the premiums for deals concluded so far for March delivery
product remains more or less unchanged from that for second half February,
this situation looks to change with the premiums looking to come off as
winter demand tapers off and as buyers look to minimize stocks before the
close of the financial year -- April-March.
If the colder-than-average winter does not continue into March, Japan's
March LSFO imports could likely fall 40-50% as compared to February, trade
Japan's largest refiner JX Nippon Oil & Energy and Japanese refiner
Cosmo Oil have bought a combined eight to 10 LSFO spot cargoes of
40,000-45,000 mt for February delivery, which could well fall to five to six
cargoes for March, the sources said.
"We're not sure how much more we'll have to buy [for March] as yet. We
are assessing the requirement ... we should know this week," said the
Japanese refinery source.
Cosmo, which bought two spot LSFO cargoes for February, will not buy any
spot LSFO for March, as the refiner would be able to meet part of its
requirements from its Chiba refinery, after it comes back from maintenance.
"I would say March imports will be zero and that's all because of Chiba
refinery's [start up], which is expected end January, said a Cosmo source.
"Besides, there is ample supply ... there is enough Libyan barrels coming to
Japan. So I'm quite relaxed right now in terms of our requirement."
Platts reported January 18 that Cosmo had started preparations to restart
a "part" of the refining units at its 220,000 b/d Chiba refinery and is
planning to resume production at the refinery in January.
Meanwhile, trade sources said the LSFO premiums will likely continue to
soften going further out into April as demand from utilities dip once
alternative sources of power generation kicks in.
"As was the case last year, this year too, we have had a lot of snow
fall, and this means an increase in hydroelectric power generation as the
snow melts going into spring," said another Japanese trader.
"I'm not sure how much of an actual impact this would have on [LSFO]
demand from utilities, but my guess is it could be around 10% [lower].
--Rajesh Nair, email@example.com
--Edited by Geetha Narayanasamy, firstname.lastname@example.org