The effects of the cabotage law in China

The strategically located terminals on the island of Hainan on China’s southernmost point, are struggling to fill their tanks are economical numbers. No road or pipeline infrastructure connecting the island with these refineries means relying on shipping the oil. Due to the cabotage law in China, the only Chinese flagged vessels have driven freight rates to levels that make the movement of oil in this mode uneconomical.

The 5 major oil storage facilities in Hainan, with a total capacity of 6.15 mil m3, are offering their tanks at low lease rates, given that the preference of oil buyers and traders is to rent tanks in China’s neighboring countries such as Japan, South Korea, Malaysia and Indonesia as transit storage for supplying to China to therefore avoid the cabotage restriction.

Lease rates at Hainan are about 40% lower compared to Shandong province for example. Strategic storage (reserves) with low turns and less transport requirements are a way for the terminals to fill their tanks with low paying business.

The oil storage operators in mainland China have more transportation options. They have pipelines that link them with many refineries or they can use trucks and trains.

North West Europe

We see more fuel oil and distillates tanks coming in the global market. Some big contracts are not renewed and tanks coming available this summer.

The stocks are also lower and the margins are suffering. It is interesting to see that that not everybody reads the market and future in the same way, since at the same time, cargo owners are prepared to take on a rental contract as well. The market is dynamic again and opportunities available.

The chemical market is active; aromatics contracts have recently been concluded at different ARA terminals.

The vegoil tanks are full. Biodiesel is filled to the rim and soft oils dominate the store market too.