Japanese shipping companies have completed term negotiations to lift bunker fuel from Singapore, with owners opting to split the six-month October-March term into two three-month cycles with different pricing, market participants said.

The change in approach was driven by price uncertainty ahead of the mandatory adoption of mass flow meters at Singapore from January 1.

Traditionally, Japanese shipping companies — including K-Line, Mitsui OSK Lines (MOL), and NYK Line — settle on a term differential for the six-month October-March term cycle.

But uncertainty over prices for Singapore bunker fuel from next year pushed traders and Japanese shipping companies to take a different approach this time, sources said.

“MOL and NYK have decided to conclude the term only on a three-month basis, so this means over October-December 2016, while K-Line concluded on a six-month basis, but with different term prices for Q4 [2016] and Q1 [2017],” a trader said Friday.

Another trader said: “For NYK and MOL, it appears that their main focus was on prices. But for K-Line, it seems their first priority was to secure bunker volumes as they had a market view that supply availability would be tighter over the term period.”

Singapore term prices for 380 CST bunker fuel for the upcoming term will be higher year on year in terms of the spread to the Singapore 380 CST delivered bunker fuel assessment, market participants said.

The October-December portion was heard to have been settled at a discount of $3-$4/mt, while the January-March portion for K-Line was heard to have been settled at parity to a discount of $2/mt.

The October 2015 to March 2016 term cycle for bunker fuel supplied from Singapore was settled at a discount of around $5-$6/mt.

“The term differentials [for the upcoming term cycle] are more or less in line with my expectations,” a trader said. “At the beginning, of course all suppliers started at high levels, but they gradually lowered to within market expectations,” he said.

The split in the term contract would be temporary, traders said, with Japanese buyers likely to go back to a six-month cycle once uncertainty around Singapore bunker fuel prices settles down.

Looking ahead, MOL and NYK will likely commence term negotiations at the end of November to settle term requirements for the January-March portion of the contract, traders said.

Sources estimated that, on average, the three major Japanese shipping companies — K-Line, MOL and NYK Line — lift a total 300,000 mt/month of bunker fuel on a term basis from Singapore.

Source: Platts