Fuel oil exports from Thailand to China for refining, utility and bunkering have risen almost fourfold this year as price-sensitive buyers seek cheaper, more direct supplies due to rising prices, traders said on Tuesday.
Imports of Thai fuel oil for April hit all-time high volumes of about 132,500 tonnes, accounting for about 5 percent of the month's total and up from last year's monthly average of about 26,000 tonnes, latest official data from China show.
The increase in Thai volumes was due mainly to South Korean exports falling by half in the past six months, and came at the expense of the more costly, better-quality Singapore cargoes.
But a cut in China's fuel oil import tax next month will allow utility and marine fuel buyers to revert to Singapore cargoes, at the expense of Thai barrels, traders said. "The Chinese needs the volumes and Singapore barrels have been too expensive, especially in the last two months when outright prices skyrocketed," a Singapore-based Asian trader said.
Import volumes from Thailand have increased substantially since the beginning of the year, averaging 99,366 tonnes monthly as of April, but still well below other major suppliers such as Singapore, Russia and Venezuela.
Grades include low-sulphur waxy residue (LSWR) parcels from the Bangchak refinery, used in oil-fired thermal power plants, as well as high-sulphur fuel oil (HSFO) for China's nascent marine fuels market from Alliance Refining Co's (ARC) facility in Map Ta Phut and ExxonMobil's Sri Racha plant.
The HSFO cargoes are either sold into the growing bunkers market in South China, which sees 2.5-3.0 million tonnes per year - equivalent to a month's consumption in top bunker port Singapore - or blended into utility grade 180-cst.
In contrast, monthly South Korean volumes averaged about 269,000 tonnes this year as of April, down from 578,000 tonnes last year. Singapore volumes for April were at 498,000 tonnes, down about 9 percent from March.
China, which imported eight-month high volumes totalling 2.76 million tonnes for April, only started importing fuel oil directly from Thailand on a regular basis from January last year, mostly LSWR for refining purposes.
"The high-sulphur Thai cargoes are usually high in carbon content that needs to be blended down before they can be used in either market. With the tax cut, it might be better to import ready-made cargoes from Singapore," another trader said.
China announced a temporary cut of zero to 3 percent, from the current 6 percent, for fuel oil imports from June 1 as part of its move to balance trade and encourage international purchases ahead of a "strategic economic dialogue" in Washington.
Traders said enquiry volumes for Chinese-specification 180-cst have risen since last week, after the tax-cut announcement, with some 180,000 tonnes in the market currently. Some deals were done at premiums of around $12 a tonne to Singapore spot 180-cst quotes, on a cost-and-freight (C&F) Hang-up basis, down from discussion levels of $14-$15 a tonne last month.
However, high outright prices - the May average is at an 11-month high of $348.10 a tonne as of Monday - could limit the upside, traders said. "The outright prices are still too high. But if they fall below the pain threshold of $330, we could see a sudden deluge of demand. Right now, it's very much cat-and-mouse but it's better than last month," another Western trader said.