Licence surge to open market for marine fuel
Cut-throat competition in the mainland's market for marine fuel is set to escalate, with Beijing poised to issue more licences to would-be operators this year.
The move is an attempt by China to increase its share of the global marine fuel supply by forcing its domestic players to improve their efficiency through greater competition.
The Ministry of Commerce is reviewing the applications of five contenders, said Zhang Jianshu, general manager of industry leader China Marine Bunker. He was speaking at the Asia Bunker Conference, organised by CBI China.
The firm, also known as Chimbusco, is a joint venture between oil titan PetroChina and shipping giant Cosco Group and accounts for over half of the mainland's duty-free sales of fuel to ocean-going vessels.
CBI China bunker oil information supervisor Melon Liu Wenya said the ministry is expected to issue the new licences as early as September, and most of the five applicants would likely succeed. They are state-owned China Aviation Oil Import & Export, fuel trader China Arts Huahai Import & Export, privately owned Shanghai Longyer Fuels, Shanghai Fuel and Dalian Xingyuan Marine Fuel.
New entrants will have to meet requirements including operating scale, assets, facilities capacities, management experience and safety records.
'Beijing wants to attract more business done in Korea, Japan, Hong Kong and Singapore. After all, China has some of the world's biggest ports and the throughputs are growing,' she said. 'Prices will be slashed in the process, but they will return to rational levels sooner or later.'
Chimbusco enjoyed a monopoly position for several decades before it was broken up in 2006. Currently, its rivals include Hong Kong-listed and privately controlled Brightoil Petroleum (Holdings), Jiangsu province-based private enterprise CNPC & Tafo Petro, China Changjiang Bunker Sinopec, China Shipping & Sinopec Suppliers and Sinopec Zhejiang Zhoushan Petroleum.
Liu said state-backed oil major Sinopec, with one wholly owned unit and two joint ventures, entered the market mid last year. It has been aggressively grabbing market share by undercutting Chimbusco's prices.
This saw industry profit that went as high as US$58 a tonne in May last year squeezed to less than US$20 a tonne in last year's second half. Losses were seen in the final two months of 2010, as well as part of February, April and June this year. Marine fuel prices have risen to US$600 a tonne in this year's first half, from under US$500 a tonne last year. 'Competition is really cut-throat nowadays and some suppliers are engaging in malpractices such as cheating on the amount of fuel supplied,' Zhang said. 'We hope the Ministry of Commerce will come up with regulations to deal with this.'
Liu expects Sinopec to replace Brightoil as the second-largest mainland market share holder this year, while Chimbusco's 60 per cent market share last year will be shaved a few percentage points this year. She forecast the mainland duty-free ocean-going marine fuel supply volume to double to around 24 million tonnes in 2015 from this year.
DBS Vickers Securities analyst Lee Wee-keat said China was previously uncompetitive compared with Singapore, which has better access to cheap fuel resources in South America and Europe due to its proximity to major shipping routes.