German utility RWE (RWEG.DE), which became a regular fuel oil arbitrage player in Singapore in the past three months, is expected to set up a trading desk in Singapore by the start of 2011, trading sources said on Tuesday.

RWE’s entry will make the congested Singapore market more competitive and squeeze already poor trading margins further, traders said.

 

An RWE spokesman could not immediately comment on the matter.

 

"They are quite a big player and they have shown that with the VLCCs they have brought in over the last three months," a Singapore-based Western trader said.

 

"And they are going to compete for their share of the ever-shrinking pie in a market that’s already suffering from poor margins."

 

For now, RWE would probably be content to break bulk on their cargoes and sell to other cargo players, but it would be a matter of time before they lease their own storage and compete with other bigger players, the trader added.

 

RWE, which started trading fuel oil more than a year ago and’ had hired former Sempra trader Martin Farr at the start of the’ year, is expanding its presence into Asia with two traders, one’ each for the physical and the paper markets, industry sources’ said.

 

The utility, which has a coal-trading desk in Singapore,’ entered the East Asian fuel oil market in August, when it fixed’ two Very Large Crude Carriers (VLCCs) from Europe to deliver’ 270,000 tonnes of fuel oil each into Singapore in early October.

    

Since then, RWE has been the most regular arbitrage player’ in the past three months, with at least one VLCC arriving in’ Singapore each month, selling the parcels to other cargo’ players.

 

To date, the German utility has fixed or provisionally’ chartered five VLCCs since the first supertankers arrived in’ October and is expected to have regular inflows in future.

 

Their latest cargoes are two December-arrival lots on board’ the VLCC Onoba, which loaded from Rotterdam on Oct. 20, and the’ Al Jabriyah, which is expected to lift from the UK on Nov. 12,’ taking the total Western arbitrage arrivals for the month to’ more than 3 million tonnes.

 

The total inflows for December are expected to exceed’ November’s six-month low volumes of 3.1-3.2 million tonnes.

 

Traders said RWE has taken over some volumes from Russia’ that used to be brought into Singapore by European traders such’ as Vitol, Glencore and BP.

 

“But these guys have cut some of their arbitrage imports’ because of poor margins and RWE has picked up the slack and’ pushing the barrels East,” another trader said.

 

“Despite the poor market environment, it would seem that RWE’ has the right ingredients to survive -- they have some sort of’ system barrels and they have the size, which gives them’ economies of scale.”

 

The utility, one of Europe’s five largest, set up its’ trading division, RWE Trading & Supply, in April 2008, mainly’ trading in power and gas, as well as procuring supplies for its’ utility business and for customers, its official website said.

 

It also trades coal, oil and carbon certificates while a’ subsidiary, RWE Trading Services, offers risk management’ services to customers.