Global mining company Rio Tinto has added a clause to its ship hire contracts that require shipowners to confirm that their ships are not carrying marine fuel supplied by embattled oil trader Hin Leong and its bunker arm Ocean Bunkering Services, market sources said.
Rio Tinto declined to comment Tuesday.
According to market sources, Rio Tinto is not the only one avoiding the use of bunker fuel supplied by Hin Leong.
“Some market players have become overly cautious because they don’t want a repeat of OW Bunker,” an industry source said.
On November 7, 2014, OW Bunker & Trading A/S and OW Supply & Trading A/S filed for bankruptcy in the Danish court due to insolvency caused by, allegedly, speculative trading activities.
The OW bankruptcy rippled through jurisdictions worldwide, pushing several industry players dealing with them into a spate of legal disputes.
“I heard about the Rio Tinto clause but I think most shipping companies have already distanced themselves since news broke out about Hin Leong’s financial troubles,” a Singapore-based bunker trader said.
One reason for this is OBS’s cancellations of bunker fuel deliveries from April 18, sources said.
“Another is that there are shipowners who did not want to use their bunker delivery note because they just wanted to keep their distance [from Hin Leong],” a second bunker trader said.
“In the past couple of weeks, traders were already sourcing replacement cargo so I think they were well-prepared in advance for a situation like this,” the trader added.
A lawyer who covers the shipping sector said: “The effect on the market has been enormous … We’ve been producing a lot of advice to charterers, traders and shipowners after the Hin Leong situation emerged.”
Players are likely not entering future contracts with Hin Leong’s shipping arm Ocean Tanker and risk of counterparty defaults has come to the limelight again, he said.
“We will have to watch how the credit market evolves because effectively cash is king,” he said.
Meanwhile, market sources highlighted that there is currently sufficient inventories to make up for OBS’s absence in the market. As the third largest bunker supplier in Singapore, OBS typically supplied 500,000 mt to 700,000 mt of bunker fuel each month.
“Bunker fuel demand has improved in the last couple of weeks because of traders looking for replacement bunker fuel on OBS cancellations. At the same time, China has ended its lockdown and we are seeing demand from Chinese vessels again,” said a Singapore-based bunker supplier.
Two new players — Minerva Bunkering and TFG Marine — have been granted bunker suppliers licenses in the Port of Singapore in April and are likely to play a pivotal position in filling the void created by Hin Leong.
On Tuesday, the Singapore Marine Fuel 0.5% bunker premium to the benchmark FOB Singapore Marine Fuel 0.5% cargo surged 257.5% to $26.42/mt from a record low of $7.39/mt on April 9, S&P Global Platts data showed.