China gasoline exports to slide further in second half

A fall in China’s gasoline exports is likely to accelerate in the second half of the year as growth in local demand and reduced refinery runs slash the volumes available for overseas sales. Reduced sales by Asia’s second-biggest exporter could potentially lift gasoline refining margins after a fall from May’s two-year high, as demand from top importers such as Indonesia increases.
Shipments slipped nearly 20 per cent in the first half to an average 398,032 tonnes a month (about 3.363 million barrels) because of reduced refinery runs, and should slide further for the first annual fall in three years.
“The slowdown mainly stems from a relative slowdown in Chinese refinery expansions and operations this year,” said David Wech, an analyst at JBC Energy in Vienna.
“Regional demand is expected to pick up and be strong in the third quarter, most notably from Pakistan, Vietnam and Indonesia.”
Wech expects Chinese gasoline exports to average 90,000 barrels per day (bpd) in 2011 compared with around 120,000 bpd in 2010. Purvin and Gertz expects Chinese gasoline exports to fall to 80,000 bpd.
Cracks, the premiums or losses from refining Brent crude into gasoline, surged to $12.82 a barrel on May 10 in anticipation of demand ahead of the US driving season.
They were around $7.70 a barrel last week, and the average of $5.90 this year has been lower than $6.05 a barrel in 2010 because of slower demand in Vietnam, Asia’s second-largest importer after Indonesia. Chinese refiners’ operating rates are lower this year because of heavy maintenance plans. They are also lowering runs as the government has been slow in raising retail prices in line with increases in crude costs for fear of stoking inflation. China’s refiners total crude runs rose 7.1 per cent year on year to 222.96 million tonnes in the first half of this year versus an increase of 13.4 per cent year on year in 2010.
The National Development and Reform Commission (NDRC) said the number of loss-making refineries rose a third in the first five months of this year and they have incurred a total loss of 17 billion yuan ($2.64 billion) in the January to May period, more than 14 times higher than a year earlier. China’s top 24 oil plants, which account for more than half of the country’s refining capacity, would process only 170,000 bpd, or 4 per cent, more crude this year than last. That’s mainly because nearly half a dozen top plants have planned turnarounds, according to a Reuters survey.
The increase this year is less than a third of the incremental level last year.
Based on official data released last week, Chinese gasoline exports were at 321,613 tonnes (2.72 million barrels) in June, lower than this year’s monthly average.
CHINA’S DEMAND: On top of reduced runs, Sinopec decided earlier this year to stop exports to ensure ample availability of products in the local market. Year-to-date shipments of the fuel have been mostly from the ports of Dalian, Shenyang and Nanning, closer to where PetroChina’s refineries are located.
Exports also fell because of the slower pace of refinery expansion. Around 460,000 bpd of new capacity is likely to be added, and most of it in the later six months, which means additional oil products may be available only from next year. In 2010, at least 684,000 bpd was added. Against this backdrop, China’s demand growth for the fuel is expected to remain steady as rising affluence boosts auto sales.
“We have reduced exports from China because consumption is up,” said Victor Shum at Purvin and Gertz. “Gasoline demand growth in China was over 7 per cent last year. It was very strong. My projection for Chinese gasoline demand growth is lower, but still growing at a little over 5 per cent.”
China’s car sales gained 5.8 per cent to 7.22 million units in the first half of the year, and while this number is a lot lower than last year’s government policy-induced growth, it is still strong enough to ensure steady demand growth for gasoline.
“Chinese gasoline demand has not really been impacted by the government tightening policy,” said Wech. “Indeed, gasoline demand growth has been healthy so far this year – and we expect gasoline consumption to average 1.76 million bpd, up 5.9 per cent from 2010.”