As Korean demand falls, fuel oil ships to China

Korea, the largest fuel oil supplier to China, may increase exports by 40 percent in June from a month earlier as refiners boost output after scheduled plant maintenance.
SK Corp., S-Oil Corp. and Hyundai Oilbank Co. plan to export as much as 350,000 metric tons of fuel oil to Asian customers in June from about 250,000 tons in May, said two refinery officials and three traders surveyed by Bloomberg.
The companies are forecast to increase shipments to China, the region’s biggest importer of the fuel, for running power plants and refining into lighter oil products. The so-called premium, or price difference between Korean fuel oil and Asia’s benchmark in Singapore, has narrowed because traders expect supplies to increase as summer refinery maintenance ends.
“Premiums have more room to ease because of higher Korean supplies and sluggish Chinese demand,” said Steve Kwon, a Seoul-based fuel oil trader at SK Networks Co. “They are now around $9 a ton, much lower than the $20 a ton seen in April, but are not likely to drop to $4 or $5.”
The spread, measuring the price of straight-run, 180-centistoke, high-sulfur fuel loaded onto a ship in Korea compared with the benchmark in Singapore, climbed to as high as $24 a ton and averaged $20 between January and May because exports were crimped by refinery maintenance.
The oil’s centistoke rating is a measure of its viscosity, or flow rate, when heated. Fuel oil with a higher centistoke has a slower flow rate and requires further blending with other fuels to lower the rating.
Hyundai Oilbank will export two 50,000-ton cargoes of high-sulfur fuel oil for loading in June to China, said a company official who asked not to be identified because of company policy. The refiner sold the supplies at a premium of about $10 a ton, he said.
China imported 28.4 percent more oil in April compared with a year earlier after its economy expanded at 11.1 percent in the first quarter.
SK, Korea’s largest refiner, plans to export as many as three 80,000-ton cargoes of 1200-centistoke high-sulfur fuel oil, a company official said. The refiner plans to export the 1200-centistoke fuel oil cargoes to Singapore, where it operates a storage terminal to supply the product as ship’s fuel, or bunker fuel, said the official who asked not to be identified because of company policy. The main viscosity rates for bunker fuels are 380-centistoke and 180-centistoke.
Korea’s bunker fuel demand has fallen, said Kazuto Ishida, a fuel oil trader with Hanwa Co. in Tokyo. “This may boost Korea’s fuel oil exports further, which will add pressure to premiums,” he said.
Korean exports fell in May due to plant maintenance at SK Corp.’s Ulsan refinery and GS-Caltex Corp.’s Yeosu unit between April and May. Increased demand from Korea Electric Power Corp. and from ship owners for marine fuel, known as bunkers, cut exports further.