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China refineries loom over Asia with record oil product exports

May 19/2020

MOSCOW (MRC) -- The rebound in Chinas crude oil processing in April looms large over Asias refineries, which are already battling weak profit margins from the slump in fuel demand caused by lockdowns aimed at containing the coronavirus pandemic, reported Reuters.

Chinas refineries processed the equivalent of 13.1 million barrels per day (bpd) in April, up from a 15-month low of 11.78 million bpd in March, according to calculations based on official data released on May 15.

While the higher processing rate reflects a recovery in fuel demand in China after it lifted most lockdown restrictions, it also raises the likelihood that more refined products will be exported into a well-supplied Asian market.

There are already signs that Chinas modern, low-cost refineries are playing a bigger role in Asias refined product markets, with official data showing fuel exports at a record-high 8 million tonnes in April, up 10.2% from March and 29.7% from the same month in 2019.

While a full breakdown by fuel type isnt yet available, using a conversion factor of eight barrels of product per tonne gives a fuel-export figure of 2.13 million bpd.

For the first four months of the year, China exported 1.72 million bpd of refined products, up 15.1% from the same period in 2019.

The increase in fuel exports from China isnt the sole reason for the regional weakness in refinery profit margins, but it certainly is a contributing factor, and appears to be largely structural rather than a temporary phenomenon.

China issued a second batch of fuel export quotas for this year to domestic refiners, allowing for 28 million tonnes of shipments, mainly for gasoline, diesel and jet kerosene, Reuters reported on May 11, citing four sources.

This follows the first 2020 allowance of 27.99 million tonnes and means Chinese refiners can keep product exports at the current high levels, should they so choose.

There are various methods of calculating refinery margins, with one of the benchmarks being the profit per barrel at a typical Singapore refinery using Dubai crude

This was showing a loss of USD3.29 a barrel in early trade on Monday, wider than the five-day average of a loss of $1.84 and well below the moving 365-day average of a profit of USD2.57.

The main culprit is gasoline, for which demand has been severely affected as a result of personal transport being curtailed by the lockdowns in various Asian countries.

The cost of producing 92-RON gasoline in Singapore from Brent crude was a loss of 85 U.S. cents per barrel on May 15.

While this was up from a record low of a loss of USD13.15 a barrel on April 14, its still well short of the high so far this year of a profit of USD9.35 on Feb. 11, just as the coronavirus was breaking out of China to spread around the globe.

The margin for gasoil, the building block of diesel and jet kerosene, has held up better, ending at a profit of USD3.45 a barrel on May 15, but this was just over a quarter of the USD12.79 high so far this year, reached on March 30.

Diesel demand has held up relatively well during the coronavirus crisis as freight, heavy vehicle transport, agriculture and mining have all largely continued.

Another factor that has perhaps prevented refining margins from falling more than they already have was the idling of capacity during recent weeks, with Refinitiv Oil Research data showing a sharp drop in utilisation.

Putting together the four biggest refining nations in Asia - China, India, Japan and South Korea - shows runs were just 84% of capacity in April, down from the annual averages of 94%-97% over the previous five years.

Refinery throughput is likely to increase in coming months, though, as more plants come back on stream as lockdowns are lifted. The question is whether the nascent recovery in fuel demand will be more, or less, than the additional volume of products being produced.

As MRC informed earlier, CNOOC Oil & Petrochemicals Co. Ltd (CNOOC), Shell Nanhai B.V (Shell) and the Huizhou Government have announced a strategic cooperation agreement to further expand the CNOOC and Shell Petrochemical Company (CSPC) 50:50 joint venture in Huizhou, Guangdong Province, China. Due to COVID-19 travel restrictions, the agreement was signed in a virtual online ceremony, attended by dignitaries including Party Secretary of Guangdong Province Li Xi, CNOOC Chairman Wang Dongjin, Shell CEO Ben van Beurden, CNOOC VP for Downstream Chen Bi and Shell Downstream Director Huibert Vigeveno.

The expansion is planned to serve the growing number of intermediate and performance chemicals customers in the key market of China, supplying products including SMPO, polyols, ethylene glycol, polyethylene (PE) and polypropylene (PP). These chemicals are used in a wide range of end products, in healthcare, construction, fabrics, packaging, transport and electronics. For the first time in Asia, Shell would apply its advanced technology for linear alpha olefins. The project is intended to include construction of a new 1.5 million-tonnes-per-year ethylene cracker, with the mega-site bringing economies of scale and enhanced competitiveness.

Ethylene and propylene are feedstocks for producing PE and PP.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
Author:Margaret Volkova
Tags:PP, PE, LLDPE, crude and gaz condensate, PP block copolymer, homopolymer PP, propylene, LDPE, HDPE, ethylene, petrochemistry, CNOOC, CNOOC and Shell Petrochemicals Company Limited (CSPC), Shell, China, Rossiya.
Category:General News
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