November 8, 2017 [S&P Global Platts] - Leasing fees for onshore storage tanks to store fuel oil in Singapore are being renewed at much lower rates, because of ample availability of floating storage capacity and narrowing margins between cargo and ex-wharf prices, industry sources said over the week.
Industry sources suggested that between S$4/mt ($2.93/mt) and S$5.50/mt per month is the current market for one to two year leases, depending on how many turns per month are included and the attractiveness of the terminal, down from monthly rates of S$8/mt or more previously signed for periods of one to three years.
Sources particularly pointed to ongoing renewal negotiations for lease agreements starting next year at Universal Terminal as representative of the current storage fees.
Shell was said to have recently renewed its lease at S$5.50 or less, while BP and Lukoil are currently negotiating and are considering not renewing their leases which expire at the end of 2017. Glencore’s lease is believed to be expiring in April 2018.
Each company currently has around 300,000 cu m of capacity at Universal, which attracts premium rates due to its VLCC berths and operational efficiency.
None of the companies mentioned above were prepared to comment on their commercial arrangements, but most did confirm that rates for new leases had fallen.
“What has changed the balance of power in the landed tank lease negotiations is the abundance of floating storage now being offered. It’s not as convenient as landed storage but the cheap floating storage gives traders another option,” one source explained.
The monthly lease for a floating storage in comparison, is less than US$3/mt, according to one trade source.
“And there are other landed storage options available in the [Singapore] Strait and places like Fujairah where traders can store and blend at cheaper rates,” he added.
As well as competition from other storage options, traders pointed to the narrowing margins in Singapore between cargo and ex-wharf prices as another reason behind the fall in storage fees.
“The Singapore market has become incredibly efficient and transparent, it’s easy to see that with the cargo to ex-wharf spread (which can be viewed as the break-bulk profit margin) often less than US$2/mt, and the backwardated market structure, one is reliant on the blending to make a profit,” one trade source said.
“It’s possible Singapore could become much more like Fujairah, with not all the tanks leased all the time, or at least not fully used all the time, so short-term ‘spot’ leases will become more common. We’re already seeing that in Singapore at rates of around US$2.50/mt per month including one turn,” the trade source said.
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