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Platts Snapshot


Bunker industry faces uncertain year as margins dwindle

With Jack Jordan, editorial lead, Bunkerworld

February 02, 2017 06:47:34 EST (3:08)

A wave of consolidation is hitting marine fuel suppliers with narrowing margins, weak demand from shipping and the threat of tighter emissions controls looming on the horizon. That’s all going to add up to the toughest year for the bunker industry in a decade, says Jack Jordan, editorial lead for bunker news at S&P Global Platts. In this video, he looks at how the industry got into this situation and why the outlook doesn’t look promising.


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Platts 8th Annual European Bunker Fuel Conference
May 17-18, 2017 | Mainport Hotel, Rotterdam, Netherlands

Platts 8th annual European Bunker Fuel Conference has long established itself as a market leading bunker fuel conference.

Each year we assemble the world's leading bunker suppliers, refiners, traders, brokers, ship owners/operators and other marine fuel industry organizations to share thier expectations for the road ahead to 2020 including; Will there be the distillate to meet demand? Is this the end for residual? Are scrubbers the answer? And how can the cap be enforced?

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Video Transcript



STRAP: Jack Jordan, editorial lead, Bunkerworld


Welcome to The Snapshot – our series which examines the forces shaping and driving global commodities markets today.


The marine fuel suppliers serving the world’s shipping industry are facing their toughest year since the 2007 crisis. Their trading margins have narrowed to a minimum, demand from shipowners isn’t what it used to be and – worst of all – politicians are starting to pay attention to them.


This used to be a business that took fuel oil – a cheap, unwanted byproduct from refineries – and sold it as fuel to a healthy shipping industry.


Since the crude price collapse in 2014 though, that model has become increasingly precarious. Margins have narrowed from a few dollars a tonne to as little as 50 cents in some places now.


STRAP: Bunker trading margins narrowing to as low as 50¢/mt


In November 2014 OW Bunker, a few months after IPO and one of the world’s largest bunker traders, collapsed unexpectedly. That triggered a wave of consolidation that is still rolling through the industry.


Last year Bomin in Hamburg said it would close offices in London, Athens, Rio de Janeiro and Tallinn. In a statement in November, it warned of a "new era for bunkering."


And Minerva Bunkers, owned by Switzerland's Mercuria Energy Trading, said in September it would close offices in Piraeus, Greece, and Seoul and focus European operations in the Canary Islands, and Asian ones in Singapore and Japan.


And this month Adrian Tolson, now a consultant and one of the industry’s most respected figures, warned smaller marine fuel suppliers that they need to stay away from the world’s bigger bunkering ports.


STRAP: Independent suppliers should stay away from bunkering hubs: consultant


He said that unless you’ve got a direct relationship with a refinery or a cargo trading operation, you should get out of Rotterdam and Singapore and find a market in the smaller ports where the oil majors aren’t so active.


A big part of what’s driving these low margins is weak demand from the shipping industry. Take a look at demand figures from Rotterdam for example – Europe’s biggest bunker port.


IMAGE: Rotterdam bunker demand 2012-2016


Here we can see a big drop from 2012’s levels. That’s partly about European GDP growth giving up the ghost, but you can’t blame it all on that. These numbers are also reflecting a sharp drop in profits for the shipping industry, dry bulk and container shipping in particular. South Korea’s Hanjin Shipping went bankrupt last year, and that’s just made things worse.


And now there’s the politicians. In October the International Maritime Organization, a UN body, told ship operators that they had to stop burning fuel oil by 2020 or cut sulfur emissions by other means.


STRAP: IMO to cut marine sulfur emissions from 3.5% to 0.5% in 2020


That’s going to mean a big rise in fuel costs as they switch to cleaner fuels, and refiners in Europe are going to struggle with the idea of fuel oil demand disappearing overnight.


But of course what everyone’s going to look at with the new regulations is compliance – can anyone guarantee that anyone will pay any attention to the rules? Tankers in northwest Europe and the US Gulf will have to follow the letter of the law – but who knows what will happen in the middle of the ocean.


STRAP – www.platts.com


Until next time on The Snapshot – we’ll be keeping an eye on the markets.





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