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 Japanese trader.

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 have said.

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 sources said.

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, rajesh_nair@platts.com
--Edited by Geetha Narayanasamy, geetha_narayanasamy@platts.com

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