ANALYSIS - China still a distant challenger as Asia bunker hub

By Chen Aizhu

BEIJING (Reuters) - China's marine fuel market looks poised to double in size in the next few years to become Asia's second largest, but it will be cold comfort for traders watching dwindling demand for similar quality fuel oil from the power sector.

Thanks to tax breaks and looser regulation, sales of marine fuel, or bunker, will likely reach 12 million tonnes (214,000 barrels per day) by around 2013, key Chinese bunker suppliers estimated, as firms like PetroChina and Sinopec Corp continue to expand marketing networks.

"As we are expanding and upgrading infrastructure -- more bigger terminals to handle bigger cargoes -- that will help cut down costs sharply," Fu Bing, head of China's top bunker supplier, state-run Chimbusco, told Reuters.

"It's about grabbing some of the market share from competitors like Japan, Hong Kong or Singapore."

But despite 15 percent annual growth in port handling volumes, traders warn Chinese demand for bunker fuel could still disappoint -- limited competition and rigid customs rules will keep its prices more expensive than market leader Singapore, meaning ships will continue to take on as little fuel as possible when docking at the country's ports.

"My main concern is there is no competition. We only take minimum volume there," said a trader with Danish shipping group A.P. Moller-Maersk, the world's largest container line, referring to a bunker port in southern China's Shenzhen where independent firm Brightoil is the only supplier.

In a fresh move to help companies boost sales, Beijing last month allowed firms to secure supplies from domestic refineries with a waiver of a $118 per tonne consumption tax and the 17-percent value-added tax normally levied on fuel oil.

Such a policy will encourage suppliers such as Sinopec Corp, which operates major refineries along the coast, to raise domestic fuel oil production, meaning the country may not have to sharply raise imports from places like Singapore, Europe, Japan or Venezuela.