Some fuel-oil trading companies have stopped leasing storage tanks in Singapore as it is no longer economical for them, with thin margins at the world’s top marine fuels market failing to cover rental costs, trade sources said on Thursday.

Marubeni International Petroleum Singapore (MIPCO), a subsidiary of Marubeni Corp, stopped leasing three tanks of 40,000 tonnes each at YTL PowerSeraya, a power plant operator in Singapore, in December, while Itochu Corp has given up 180,000 cubic metres of storage at Helios terminal, sources at the trading companies said.

And Petrosummit, the trading arm of Sumitomo Corp, has halted a lease on 150,000 cubic metres of storage at Vopak, industry sources said.

A Marubeni spokesman declined to comment while Itochu did not have any immediate comment. Petrosummit was not immediately reachable for comment.

The moves come as trading companies grapple with slowing demand for fuel oil and a market in backwardation for much of the past two years that is making it difficult for them to hedge their cargoes.

“There is no margin — too much competition and demand is not so good,” a trader with a North Asian firm said. “We cannot cover tank costs by just trading HSFO (high-sulphur fuel oil).”

Trading companies typically lease storage tanks to blend various oil components into HSFO to meet fuel specifications for ships calling at the Singapore port.

The $1 premium they get for each tonne of fuel oil they sell from the tanks is a fraction of the monthly cost of leasing storage tanks in Singapore, which is currently around $6 per cubic metre. A tonne of fuel oil requires roughly 1 cubic metre of storage space.

Congestion at some terminals also makes it difficult for traders to blend and sell oil quickly, the sources said. The storage-tank turnover ratio, or the rate at which oil enters and leaves a tank, is lower than 1 a month.

“The turnover is about 0.7 to 0.8. It’s very tough if you’re hoping to get 1,” a veteran fuel oil trader said. “It’s also very difficult to hedge nowadays because of backwardation.”

Slowing Demand

Adding to traders’ woes, fuel oil’s prompt intermonth spread has stayed in backwardation for most of 2011 and 2012, making it difficult for traders to hedge their cargoes.

In a backwardated market, prompt prices are higher than future months.

“It’s becoming pure speculation if we can make money or not,” the first trader said. Marine fuel demand has slowed at the world’s largest bunkering port as the shipping sector has struggled with overcapacity and low freight rates.

Singapore marine fuel sales fell to a two-year low of 42.7 million tonnes in 2012. They plunged in February to the lowest in three years, official data showed.

The exits of some traders have depressed storage tank rental rates in Singapore by about 10 percent from last year. But some new and existing players have signed on leases.

U.S. trader Castleton Commodities International, which acquired LDH Energy, has recently leased storage from Vopak, traders said. “There will always be someone with a longer term view,” a source familiar with storage said.

“It helps if they have logistics and are more integrated with ships and bunker barges,” he said, adding that this business model works better than just selling fuel oil.

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Singapore’s storage facilities in TankTerminals.com: Oiltanking Singapore Seraya, Oiltanking Odfjell Singapore, Oiltanking Singapore JI Hwy, Vopak Sebarok Singapore, Vopak Sakra Singapore, Vopak Penjuru Singapore, Vopak Banyan Singapore, Horizon Singapore