Bunker prices dip to $300 level first time in 5+1/2 years Bunker (ship fuel oil) prices are on the continuous decline. The benchmark Singapore-loaded 380-cst fuel fetched $384 per ton on Dec. 9, sagging below $400/ton for the first time in about five and a half years since July 2009. The decline in bunker purchase prices, which make up the bulk of ship operation expenses, helps improve profitability at shipping operators. Most recent bunker prices have reached levels at which operators find it easy to ease their slow-speed navigations for some of their ships. As such, the slow-speed navigation shipping circles have pursued as the industrial norm since the 2008 Lehman shock is now drawing near to a turning point. Bunker prices had transitioned around Distribution : daily to 31750+ active addresses 15-12-2014 Page 23 $600/ton till August 2014, but nosedived in/after September in step with a slide in crude oil prices. The prices sank to the upper $400/ton level in October and temporarily rebounded later on the collapse of major bunker seller OW Bunker A/S. From late November, however, bunker prices again followed a downtrend. The slide in bunker prices helps lift the business performance of operators. Major Japanese operators set their premised bunker prices for the second half of fiscal 2014 (ending March 2015) at $500-590/ton. The current bunker prices, which are far below earlier estimates, have the effect of revising their second-half business results upward.Nevertheless, bunker prices are falling so fast that some players have begun to fret over negative effects. The most economical navigation speed for ships operation speed is determined by the shipping market and bunker prices. That speed goes up if either bunker prices fall or the shipping market rises. For some types of which, the markets for which are relatively brisk, the most economical speed has reached close to their full speeds due to the rout in bunker prices, raising the possibility that their operators will move to ease or halt slow-speed navigations. The rise in navigation speeds effectively leads to an increase in volume of ship bottoms, thereby applying downward pressure on the shipping market.In a service contract that contains a BAF (bunker adjustment factor) clause, a drop in bunker prices lowers freight rates. As Japanese operators have stockpiles of bunker in their fuel tanks which they had purchased before its prices fell, their balance sheet will be adversely affected at least in the short run in the so-called BAF-negative phenomenon in which a decrease in freight rates exceeds that in fuel costs. As bunker prices have been stuck at high levels, more of operators have capitalized on bunker futures in recent years. Operators with a large amount of futures aimed at hedging risks could see the profitability-improving effect of falling bunker prices dwindle or face derivatives losses.Bunker prices had hovered at $100-200/ton until the first half of the 2000s. They are standing around half the peak-time level these days, but are still high from a longer-term perspective. Yet, a further fall in bunker prices could have the effects of delaying a hoped-for improvement in the supply-demand imbalance as navigation speeds are likely to go up even under sluggish shipping market conditions as well as of lowering competitive edge of fuel-efficient newbuildings constructed in Japan.Source : Kaiji Press via Justus Schoemaker Dutch - Japanese Maritime Desk K.K.
Posted on: Mon, 15 Dec 2014 10:21:19 +0000
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