A volatile first half could see big moves in hi-lo price differential but the trend of falling HSFO prices gives the advantage to users of scrubber systems, says Maritime Strategies International.
Maritime Strategies International (MSI) has added new functionality to its MSI Horizon data platform to enable users to calculate the earnings premium for scrubber-fitted vessels using high sulphur fuel oil and the subsequent impact on asset values.
Using MSI’s Forecast Marine eValuator (FMV), users can apply the spread between high sulphur fuel oil and 0.5 per cent sulphur fuel oil by vessel type and see the effect this has on vessel earnings.
The addition to MSI Horizon functionality comes as the industry enters IMO 2020, which is expected to have a significant impact on fuel costs and operating margins, with bunker price and availability varying by region across the first half of the year.
“That IMO 2020 is already well underway can be seen from recent movements in bunker prices and using MSI’s latest forecasts at current price spread levels, we expect substantial premia on scrubber-fitted vessel earnings next year,” said Adam Kent, managing director of Maritime Strategies International. “So far price dynamics are adhering to our view that there won’t be a huge price spike in low-sulphur fuel, but rather the spread will be driven by falling HSFO prices.”
On an annual average basis, the MSI hi-lo spread projections are very close to its previous predictions, with a nominal spread between benchmarks of just over $200/tonne between HSFO and VLSFO and over $300/tonne between HSFO and MGO.
MSI’s most recent quarterly reports assess the impact of the spread on earnings across the shipping sectors. For a 13,000 TEU containership consuming approximately 100 tonnes per day of fuel, a $200 per tonne price spread between 0.5 per cent sulphur compliant fuel and high sulphur fuel would yield average cost savings over a year of approximately $17,400/day, whilst a $300 per tonne spread would yield savings close to $26,000/day.
For a Capesize bulker consuming approximately 43 tonnes of fuel per day, a $200/tonne price spread between 0.5 per cent sulphur compliant fuel and high sulphur fuel would yield cost savings of approximately $6,500/day, whilst a $300 per tonne spread would yield savings close to $9,700/day.
For a VLCC consuming approximately 85 tonnes per day of fuel, a $200/tonne price spread between 0.5 per cent sulphur compliant fuel and high sulphur fuel would yield cost savings of approximately $15,000/day, whilst a $300 per tonne spread would yield savings close to $23,000/day.
“Our analysis shows the main dynamic in the second half of 2019 to be the recent relative decline in fuel oil prices and as a result there are large regional disparities in bunker prices,” added Dr Kent. “Our spread projections may appear conservative given the upheaval in the markets, but they reflect annual average prices. The first half of 2020 is likely to be more volatile and given the rapid decline in HSFO prices, MSI expects more exaggerated price differentials in the first quarter of 2020.”