China's marine fuel market looks poised to double in size in the next few years to become Asia's second largest, but it will be cold comfort for traders watching dwindling demand for similar quality fuel oil from the power sector.
Thanks to tax breaks and looser regulation, sales of marine fuel, or bunker, is likely to reach 12 million tonnes (214,000 barrels per day) by around 2013, key Chinese bunker suppliers estimated, as firms such as PetroChina and Sinopec Corp continue to expand marketing networks.
'As we are expanding and upgrading infrastructure - more bigger terminals to handle bigger cargoes - that will help cut down costs sharply,' Fu Bing, head of China's top bunker supplier, state-run Chimbusco, told Reuters. 'It's about grabbing some of the market share from competitors like Japan, Hong Kong or Singapore.'
But despite 15 per cent annual growth in port handling volumes, traders warn that Chinese demand for bunker fuel could still disappoint - limited competition and rigid customs rules will keep its prices higher than market leader Singapore, meaning ships will continue to take on as little fuel as possible when docking at the country's ports.
'My main concern is there is no competition. We only take minimum volume there,' said a trader with Danish shipping group AP Moller-Maersk, the world's largest container line, referring to a bunker port in Shenzhen where independent firm Brightoil is the only supplier.
In a fresh move to help companies boost sales, Beijing last month allowed firms to secure supplies from domestic refineries with a waiver of a US$118 per tonne consumption tax and the 17 per cent value-added tax normally levied on fuel oil.
Such a policy will encourage suppliers such as Sinopec Corp, which operates major refineries along the coast, to raise domestic fuel oil production, meaning that the country may not have to sharply raise imports from places such as Singapore, Europe, Japan or Venezuela.
China's bunker fuel sales have been growing at a rapid clip as its shipping volume booms along with its economy, and after it let in four new players to what had been a state monopoly.
The 6.3 million tonnes sold in 2008 is nearly double some 3.5 million tonnes in 2003, putting the country in the same league as South Korea or Hong Kong, but still dwarfed by Singapore's 30 million tonnes.
China's bunker sales to foreign vessels and Chinese liners plying international routes - as opposed to its much larger domestic market - had long been dominated by Chimbusco, which has been in an energy alliance with top energy firm PetroChina since late 2003.
Just over two years ago, Beijing let in four new players, Brightoil and three firms fully or partly owned by Sinopec.
Around May, China lifted restrictions on supply points, allowing all the five players to operate in any ports, sending firms rushing to expand networks.
'Why do we have the confidence for growth? Because the monopoly was broken and we can utilise our own refinery supplies to cut down costs,' said a trader at top refiner Sinopec, which in 2003 entered a bunker partnership with China Shipping Group.
But a market with only five suppliers to serve the huge container and commodities fleet calling at more than 20 Chinese ports is just not competitive enough against Singapore, Asian traders said.
Singapore's active bunker market has nearly 100 players, and keeps luring new arrivals such as China's Southernpec, a firm partly owned by Sinopec that in June bought an aged crude carrier as floating storage to start bunker trade off the island state.