Easing China Diesel Exports Offer Respite to Asian RefinersBloomberg News
ICIS China, JBC cut forecasts for outbound diesel shipments
China fuel price floor boosting domestic profit margins
The rush of Chinese diesel exports that’s been tormenting Asian refiners may be slowing.
Outbound shipments, which reached a record in 2015, may be about 20 percent lower this year than earlier predictions, according to ICIS China. JBC Energy GmbH also cut by roughly a fifth its export estimates for the first quarter. The country’s refiners may be encouraged to keep more fuel in the domestic market after the government put a floor under prices amid oil’s crash. That’s already supporting margins for rival refiners around Asia, who saw profits last month tumble to the lowest in more than year.
"China is inwardly directing some of the fuels that would otherwise have been offloaded to the exports market," Peter Lee, an analyst with BMI Research in Singapore, said in an e-mail. "The refining margin in Asia has benefited as a result."
A slowdown in shipments will be a boon for refiners including Taiwan’s Formosa Petrochemical Corp. and India’s Hindustan Petroleum Corp. that have cited exports as a threat this year. China inundated regional markets with diesel since the second half of last year to relieve swollen stockpiles of the fuel as industrial activity slowed. That may be easing as the country keeps domestic prices elevated to curb pollution and slow consumption growth.
"The spread between domestic and international wholesale prices might incentivize some players to put material on stock to sell it into the domestic market at a later point," analysts with Vienna-based JBC Energy, including Eugene Lindell, which cut first its first-quarter export estimate by by 22 percent to 210,000 barrels a day, said in an e-mail. China’s latest export figures “clearly puts our previous forecast in doubt.”
Lin Jiaxin, an analyst with ICIS China, cut an earlier estimate of Chinese diesel exports this year by about 20 percent to 9 million tons, or an average of 180,000 barrels a day. Lin sees shipments in February falling 10 percent further from the five-month low in January of about 177,000 barrels a day.
The world’s largest energy consumer suspended price cuts for fuels such as diesel and gasoline as long as crude trades below $40 a barrel. Brent crude, the global benchmark, has averaged about $33 a barrel this year and was up 0.2 percent at $36.88 as of 6:42 a.m. Wednesday in London. The price floor has boosted the fuel-making profit of major Chinese refineries to the highest since at least 2009, ICIS China, a Shanghai-based commodity researcher, said Monday.
Meanwhile, a common measure of refining profits elsewhere in Asia -- the margin from turning Middle East benchmark Dubai oil into fuels sold in the regional trading hub of Singapore -- has rebounded since falling on Feb. 9 to the lowest since October 2014.
Ehsan Ul-Haq, an analyst at KBC Advanced Technologies in London, reduced his forecast for Chinese diesel exports "slightly" to 800,000 tons a month, or about 200,000 barrels a day, for the first half of the year and expects them to rise to 850,000 tons a month in the second half.
"I had expected higher exports numbers in the first half," Ul-Haq said in an e-mail. "The overall diesel export volumes will be impacted by the $40 a barrel rule."
China’s diesel demand, a barometer of the country’s industrial activity, fell 3.7 percent last year, compared with an increase of 7 percent for gasoline, according to data from the National Development and Reform Commission, the country’s top economic planner. The country’s official factory gauge in February extended its stretch of deteriorating conditions to a record seven months, while a measure of services fell to the weakest in seven years.
Exports may rebound after the Lunar New Year holiday during the second week of February, Michal Meidan, a London-based analyst with Energy Aspects, said in a report dated Feb. 25. More than a billion people travel during the period in the world’s largest human migration, boosting local fuel demand, according to Societe Generale SA.
Wendy Yong, an analyst at FGE, an energy researcher, said she’s maintaining her previous diesel export estimate of about 250,000 barrels a day as shipments are expected to pick up later in the year, underpinned by higher refinery runs.
— With assistance by Jing Yang