Hong Kong-listed Jinhui Holdings Company Limited is set to opt for low sulfur fuel oil to comply with the International Maritime Organization’s global sulfur limit for marine fuels as the deadline inches closer, the company said.
The IMO rule will cap sulfur in marine fuels at 0.5% worldwide from January 1, 2020, from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%.
Shipowners will have to either switch to using cleaner, more expensive fuels or install scrubbers.
“From the environmental perspective, we believe the use of low sulfur fuel is the most efficient way to tackle this issue. We expect the availability of such product will become abundant at reasonable costs with time, given the likelihood of an increasing demand,” Jinhui said in its half yearly report.
Jinhui also said LSFO was set to be the marine fuel choice for the company as options such as using scrubbers posed challenges.
“We are currently refraining from the installation of scrubbers, given the long term technical and commercial viability of scrubbers is yet to be proven,” it said, adding that it expected pricing economics to become more favorable with the passage of time.
Despite its increasing commercial attractiveness, the widespread adoption of scrubbers is still fraught with challenges, Drewry Maritime Financial Research said in a report this month.
The premium for LSFO over HSFO is expected to gradually decline from 2020 as supply increases, it said.
“The premium will decline from around $300/mt in 2020 to $87/mt by 2023, and accordingly, the savings on bunker cost for a modern eco-VLCC will decrease from $5.7 million to $1.6 million,” Drewry said, citing its projections.
For VLCCs, the cost of fitting an open loop scrubber in a newbuild ship is around $2.5 million-$3 million, while the cost of retrofitting a scrubber on an existing VLCC will be $4 million-$4.5 million.
This suggests that owners opting for scrubber-fitted vessels in 2020 would recover their cost in the first year alone, it said.
However, the availability of HSFO for scrubber-fitted vessels, particularly at small ports, could be restricted if the overall fleet of scrubber-fitted ships remains small, it said.
Meanwhile, Jinhui said its shipping-related expenses fell 9.4% year on year to $19.21 million in H1 2018, due to the reduction in the number of vessels as the group disposed of five vessels in H1 2017. Jinhui reported a net profit of $5.3 million in H1 2018 compared to a net loss of $8.76 million in H1 2017. The dry bulk shipping market improved remarkably in H1 2018, driven mainly by strong Chinese dry bulk imports, limited tonnage growth and a high level of demolition activities, it said.
The freight market in 2018, especially for Supramaxes, has so far been favorable for the company, it said.
Still, the company remained cautious due to global macroeconomic factors and continued trade war tensions.
“Recently, global political uncertainties further stepped up, with the US-China trade dispute potentially turning into one of the largest global trade conflicts in history. We expect the current trade tensions are likely to get worse before they get better,” it said.
“We will continue to refrain from using freight, bunker, currencies or interest rate derivatives to minimize any unnecessary business risks,” it said.
The company has also invested a “small amount” of capital into real estate assets in order to build a steady recurring income, it said.
As of August 28, the group had twenty owned vessels, with its Supramax fleet comprising 18 vessels, it said.