Global marine fuel demand unlikely to recover until 2014

SINGAPORE (Reuters): Global demand for marine fuel is unlikely to recover from near three-year lows until at least 2014, hit by a combination of high oil prices, a battered shipping industry and a global economic slowdown, industry executives said last week.

Marine fuel sales in Singapore, the world's top bunker port, dropped 6 percent in September from the previous month to 3.33 million metric tons. That was the lowest since February, when sales dropped to a two-year low of 3.09 million metric tons.

The shipping industry fears an economic slowdown in China will prolong a four-year downturn and keep demand for bunker fuel weak. Chinese demand for foreign oil, iron ore, coal and grains is a key driver for tanker and dry bulk freight markets, while the container industry depends on exports from the country's manufacturing and retail industries.

"We are looking at 18 to 24 months before larger demand starts coming back," Henrik Zederkof, chief executive of global bunker fuel supplier Dan Bunkering, said at an industry conference.

"Right now, (ship operators) are in a position where every day they try their best to see if they can just meet daily costs. I'm quite worried about them because we're partners for many years."

Others were even more pessimistic, with one container shipping executive at the conference predicting a recovery in bunker fuel demand would not take place until 2015 due to the slowdown in China and the lingering debt crisis in Europe.

Economic growth in China has slipped for six consecutive quarters compared with a year earlier and figures on Thursday are expected to show the slide continued in July-September.

Bunker demand has also declined due to cost-cutting, energy saving measures taken by the shipping industry, such as reducing speeds, idling vessels and buying more fuel efficient ships.

"With shipping lines adopting slow steaming to cut costs and manage the oversupply in capacity, bunker suppliers are finding their bottom lines affected as well," said Lui Tuck Yew, Singapore's minister for transport.

Slowing the speed of ships to 18 knots from 22 knots, for instance, can cut bunker fuel consumption by 35 percent, said Kwa Chong Seng, chairman of Singapore's Neptune Orient Lines, the world's seventh-largest container shipping firm. Further savings of 20 to 30 percent could come through use of more fuel-efficient technology.

High bunker fuel prices have helped force the restructuring of many shipping firms across the globe, from Norway-listed Frontline and Italy's Deiulemar Shipping to Indonesia's Berlian Laju Tanker and Sanko Steamship in Japan.

Average earnings per day on the benchmark supertanker Middle East Gulf to Japan route have stayed below operating costs for all but one day in the last three months.

Ex-wharf marine fuel prices in Singapore averaged around $675.50 a metric ton in September versus around $667.00 a metric ton in August, the highest since April, the country's port authority said. Marine fuel prices trade closely in line with crude, which has stayed above $100 a barrel since mid-July.

"With the heightened volatility in crude oil as well as supply shortages and civil unrest in the Middle East, we can expect bunker costs to be the greatest burden for the shipping industry for the foreseeable future," Cleartrade Exchange, an electronic marketplace for over-the-counter freight and commodity derivatives, said in a statement.