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 percent in the first half to an average 398,032 tons 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 percent year on year to 222.96
million tons in the first half of this year versus an increase of 13.4
percent 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 percent, 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 tons (2.72 million barrels) in June, lower than this year’s
monthly average. 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 percent last year. It was very
strong. My projection for Chinese gasoline demand growth is lower, but
still growing at a little over 5 percent.” China’s car sales gained
5.8 percent 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 percent
from 2010.” The impact of the tightening may come next year when
demand growth is expected to fall to 3-4 percent, and that may lead to
China’s exports rising nearly 40 percent from levels forecast in 2011 to
130,000 bpd, said Wech.
