MSI: Scrubber-Fitted Vessels are the Early Winners

IMO2020 is already well underway, says Dr. Adam Kent, Managing Director of Maritime Strategies International (MSI). This can be seen from recent movements in bunker prices. “Using MSI’s latest forecasts at current price spread levels, we expect substantial premia on scrubber-fitted vessel earnings next year. So far price dynamics are adhering to our view that there won’t be a huge price spike in low-sulfur fuel, but rather the spread will be driven by falling high sulfur fuel oil (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 very low sulfur fuel oil (VLSFO) and over $300/tonne between HSFO and marine gas oil (MGO).

MSI’s most recent quarterly reports assess the impact of the spread on earnings across the shipping sectors. For a 13,000 TEU container ship consuming approximately 100 tonnes per day of fuel, a $200 per tonne price spread between 0.5 percent sulfur compliant fuel and high sulfur 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 percent sulfur compliant fuel and high sulfur 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 percent sulfur compliant fuel and high sulfur 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,” says 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.”

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 sulfur fuel oil and the subsequent impact on asset values. Using MSI’s Forecast Marine eValuator (FMV), users can apply the spread between high sulfur fuel oil and 0.5 percent sulfur fuel oil by vessel type and see the effect this has on vessel earnings.