World Bunkering > News > Spring 2011 > Long term optimism

Last year was not an easy one for most players in the UAE, and wider Middle East, bunker market. While overall figures are not available, the words most used to describe sales were “flat” or, more positively, “stable” and it is clear that pressure on margins has continued unabated.

In the long run, though, there is considerable optimism surrounding the UAE’s prospects. One indication of this came in October last year when a joint venture between between Fujairah National Group subsidiary Gulf Petrol Supplies and Singapore-based Chemoil, GPSChemoil announced that it had arranged the $90 million financing of phase four of its storage terminal at Fujairah.

Saif Al Salami, managing director of Fujairah National Group and GPSChemoil director, said: “Gulf Petrol Supplies’ ongoing investments in Fujairah, including GPSChemoil storage terminal expansion, are reflective of our confidence and commitment to the Emirate’s growth and strategic importance to the region.” The storage terminal will increase capacity in Fujairah from its existing 95,000 cubic meters to approximately 675,000 cubic meters. In total, phase four of the facility is expected to cost $130 million when completed in 2012. It will be one of the largest bunker terminals in the Middle East.

Competition intensifies

At present, however, traders and suppliers in the region are having to contend with flat sales and intense competition, both locally and from Singapore, which has been competing strongly on price and, in the opinion of several insiders, has attracted some business away from Fujairah. Mehran Ghobadian, sales director of BGK Bunkers, says: “We were hoping for much increased growth last year but instead sales were flat. It appears Singapore increased its sales at the expense of the Middle East. It was able to offer lower prices than suppliers here.”

Looking ahead he is hoping for a better year. He says: “I am optimistic that while volumes will probably remain stable, margins may be a bit better. We are planning to acquire one more barge to add to our current fleet of five.” Jalal Shariff, the owner of Dubai-based trader Asean International Limited, said: “Thanks to the UAE’s strategic position demand will continue. How much volumes will grow depends on how fast the country recovers from the financial crisis of the last two years. In 2010 we have seen stable volumes.”

He continues: “Margins for suppliers still remain wafer thin. Suppliers continue to fight for business against limited demand and to stay in existence continue to accept very low, or even negative, margins. At some stage, if the region does not pick up, possibility of consolidation or some players being unable to continue might occur. Regarding his own firm, Mr Shariff says: “In 2010 Asean rethought its future strategy and started working on areas where margins remain slightly healthier than others. It also expanded in other countries such as Tanzania, where it complemented the one-stop-shop service to its clients. “With this new approach, we feel that in 2011 we will achieve reasonable growth over the year.”

The big picture

On the overall picture Carsten Ladekjaer, managing director International Bunkering Middle East, says: “Not having access to actual statistics and thereby more detailed and accurate figures, my personal assessment is that the volumes demanded throughout 2010 have been more or less stable compared to 2009. Amongst the local suppliers we did see some shifting in volumes though, and this is still ongoing. We also saw some of the shipoperators who pulled back earlier, post recession, coming back into action in 2010 and this of course is a good sign. The big question remains how will the future look in the coming years.

“Like so many others in this region I tend to believe that this will depend largely on the development in the Asian and Sub Indian continents as well as of course locally. The latter would, as usual, depend largely on the development in the oil price.”

Mr Ladekjaer says that wafer thin margins and the trend towards consolidation continued throughout 2010, “to some extent”. He adds: “The demand for transport of shipping goods has decreased within the last couple of years in many segments, whereas the supply of tonnage has only increased. This sour cocktail has made many operators, owners and the like look for savings everywhere they can.

As a result there is a more intense fight for every cent to be saved or earned. On the other hand the risk involved in bunker trading has also increased and I believe more and more players in the industry are seeing a need to maintain and secure a minimum of earnings to justify the responsibility they do take on in the industry. In other words that consolidation is still going on and many players are still seeking to find out where to strike the balance between risk taking, tough competition and margin making.

“In terms of the general consolidation within the bunker and lubricant trading market,” he says, “there is no doubt in my mind that the bigger players, such as International Bunkering, should come out stronger than many of the smaller independent players, who do not find themselves on a strong financial platform and who are perhaps not geared in the same way to adjust to the current scenario.”

For International Bunkering, according to its managing director, 2010 has been satisfactory considering the market and the general circumstances at hand. “It looks like we will not be looking back at a record-breaking year this time but we are still quite proud of the team efforts and the good results we did achieve in what I would call a challenging market in a challenging time. As such, I remain optimistic as far as 2011 is concerned. I do believe 2011 will be another year where we shall see further consolidation within both the shipping and bunker industry scene. There are quite a few major players out there who will aim to make it their year and as such I expect it to be quite an interesting and exiting year.”