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May 9 (Bloomberg) -- Declining demand for ship fuel in Singapore, the merchant fleet’s biggest refueling hub, is signaling weakening prospects for a rebound in Chinese growth.
Fuel oil for immediate delivery traded at the biggest discount to later supplies in 16 months on April 28, according to data from PVM Oil Associates Ltd. Sales of so-called bunker dropped for a third month in March, the longest retreat since November 2007, the latest Maritime and Port Authority data show.
The discount in Singapore’s fuel market shows how growth in demand to ship goods in and out of the world’s second-biggest economy weakened this year. While China’s trade volume unexpectedly rose last month, economists surveyed by Bloomberg anticipate the slowest annual economic growth in almost a quarter century.
“Falling fuel-oil prices are a consistent reflection of a slowing Chinese economy,” Victor Shum, a vice president at IHS Energy Insight, a consultant in Singapore, said May 6. “I expect the fuel oil market to remain weak on sluggish bunker demand.”
Front-month 380-centistoke fuel-oil swaps cost $3.25 a metric ton less than second-month contracts on April 28, the biggest discount since December 2012. While front-month swaps since rebounded to a premium of $1.25 as the contracts rolled into a new month, this year’s peak was $9.13 in January.
Sales of bunker in Singapore, which supplied fuel valued at about $26 billion last year, dropped to the lowest level since February 2013 in March, Maritime and Port Authority data show. The 2 percent decline in the first quarter was the biggest for the period since at least 2005.
“Bunker volumes here are very low, as trade slows not only in China, but also in India,” Simon Neo, the executive director of Piroj International LLP, a Singapore-based broker, said April 28. Sales were previously “largely supported by Chinese trading activities,” said Neo, who was chairman of the International Bunker Industry Association until the end of March.
China’s exports in April were 0.9 percent higher than a year ago, when data were inflated by fraudulent invoicing. That compares with the median estimate for a 3 percent drop in a Bloomberg survey of analysts. Exports fell 6.6 percent in March and 18.1 percent in February.
First-quarter economic growth slowed to 7.4 percent, the weakest pace in six periods. The government’s official full-year target is 7.5 percent, which would be the slowest since 1990, and the median of 58 economist estimates compiled by Bloomberg is for growth of 7.3 percent.
India’s economy, Asia’s third-largest, expanded 4.5 percent in the year through March 2013, the slowest pace in a decade. The government estimates gross domestic product increased 4.9 percent in the year ended March 31.
The decline in fuel sales in Singapore is “marginal” and it remains a competitive bunker port in the region, said Paul Bradshaw, the Singapore-based general manager for Asia at OW Bunker A/S, which controls 7 percent of the global market.
“The reduced demand for raw-commodity products in China has impacted regional bulk and tanker trade flows and led to a subsequent drop in vessels calling in the region,” Bradshaw said May 6. “Secondly, there has been a transfer of volumes to other ports, primarily in Far East Russia and Europe, as shipping companies opt for lower-cost ports.”
Declining prices for bunker, typically produced at a loss after making gasoline and diesel, may shrink refiners’ margins while also lowering costs for vessel owners. About half of all fuel oil is used by ships, according to the Paris-based International Energy Agency.
Fuel-oil imports by China, the region’s second-biggest buyer after Singapore, fell to 1.51 million tons in March, the least in three months, government data show. First-quarter purchases dropped 23 percent from a year earlier.
Independent refiners in China use fuel oil as feedstock to produce higher-value fuels such as gasoline. They cut processing rates to 29.4 percent of capacity in the week through April 11, the lowest level in almost a year, according to Oilchem.net, an industry website. The so-called teapot plants account for more than half of the nation’s fuel-oil imports.
Declining fuel-oil supplies to Asia from sources such as the U.S., Europe and the Caribbean, may help boost prices in Singapore, according to KBC Energy Economics, an industry consultant based in Walton-on-Thames, England.
Western nations are scheduled to send 3.12 million tons of fuel oil to Asia this month, compared with a monthly average of 3.48 million tons last year, according to data from shipbrokers including Poten & Partners Inc. About 3.86 million tons arrived in April, the most in eight months.
“Inflows should be lower for the month of May, that should help,” Jit Yang Lim, a Singapore-based analyst at KBC, said April 28. “Demand may not pick up, but the supply side is lesser.”