By Roslan Khasawneh and Chen Aizhu
SINGAPORE, March 2 (Reuters) - China's marine fuels sales fell by as much as 50% in February as the rapidly spreading coronavirus and prolonged Lunar New Year break strangled freight movement in and out of the global manufacturing powerhouse, trade sources said.
The epidemic, which has killed almost 3,000 people and infected about 80,000 in China alone, triggered the sharpest contraction on record for Chinese factory activity in February and caused massive port congestion because of labour shortages.
The resulting plunge in freight demand has knocked 40% off Asian prices for very low-sulphur fuel oil (VLSFO) MFO05-SIN since early January and upended expectations of an enduring shortage of the fuel stemming from stricter ship emissions standards that kicked in this year.
February bunker fuel demand in China is estimated to have fallen by 30-50% from the previous month, while demand in rival bunkering hubs such as Fujairah and Singapore are expected to have slumped by 20-30%, according to estimates by five bunker traders.
The demand shock could also delay Chinese refiners' plans to boost output of VLSFO, which yielded profits averaging about $15 a barrel above Brent crude in February LFO05SGBRTCMc1.
Marine fuel sales at the eastern port of Zhoushan, China's top bunkering hub, hit a record 374,000 tonnes in January, up 19% year on year.
Beijing also issued an export tax rebate for the fuel in January, leading to expectations that refiners would steadily raise supplies of the fuel in 2020 and target sales to China's vast commercial fleet.
Instead, Chinese refiners cut crude throughput by 1.5 million barrels per day in February as demand dived.
"Demand has dropped everywhere in Asia, especially China," said one Singapore-based bunker fuel trader, pointing to swelling inventories at Singapore and Fujairah in the United Arab Emirates.
State refiners China National Offshore Oil Corporation (CNOOC), PetroChina, Sinopec and privately-run Zhejiang Petrochemical Corp (ZPC) were among the first to export VLSFO under the new tax regime, putting the oil into bonded storage in the ports of Dalian, Shandong and Zhoushan, according to industry officials directly involved in the business.
CNOOC's exports totalled 4,500 tonnes while ZPC's exports were at 2,000 tonnes, they said, adding that companies had kept volumes small as they became familiar with the new system that requires approvals from local customs to access bonded storage.
However, congestion at Chinese ports is easing gradually, which could help to improve bunker fuel demand and encourage refiners to increase VLSFO exports in the second quarter, trade sources said.
"The amount of oil our refineries are able to supply does not necessarily equal to the size of exports, as some of the customs were still waiting for staff to return to work," a PetroChina executive said.
Sinopec and China National Petroleum Corp (CNPC) have said they can produce a combined 14 million tonnes of VLSFO per year, while other Chinese refiners could add at least 4 million tonnes.
Asia low-sulphur fuel prices plummet as coronavirus shuts down freight flows into Chinahttps://tmsnrt.rs/38kxLDy
(Reporting by Roslan Khasawneh and Aizhu Chen in Singapore, additional reporting by Muyu Xu in Beijing Editing by Florence Tan and David Goodman)
((firstname.lastname@example.org; +65 6870 3121; Reuters Messaging: email@example.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.