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Asia Distillates-Gasoil cash discount narrows, cracks dip

November 25/2020

MOSCOW (MRC) -- Asia's cash differentials for 10 ppm gasoil gained on Friday backed by a firmer deal in the physical market, while refining margins for the industrial fuel dipped amid concerns that near-term supplies would likely outweigh demand, reported Reuters.

Cash differentials for gasoil with 10 ppm sulphur content were at a discount of 13 cents a barrel to Singapore quotes on Friday, compared with a 14-cent discount on Thursday. Refining profit margins, also known as cracks, for 10 ppm gasoil slipped 8 cents to USD4.97 a barrel over Dubai crude during Asian trading hours. The cracks, however, have gained 6.7% this week. With surging COVID-19 cases and renewed lockdowns in several countries, the industrial and transportation demand will come under further pressure, trade sources said. The front-month time spread for 10 ppm gasoil, which has remained in a contango structure since early August, traded at a discount of 14 cents per barrel on Friday, Refinitiv Eikon data showed.

The regional gasoil market, currently grappling with supplies also due to lack of arbitrage opportunities to Europe, is expected to receive additional supplies from China over the next few weeks, which would worsen the glut, market watchers said. The exchange of futures for swaps (EFS), which determines the gasoil price spread between Singapore and Northwest Europe, traded around minus USD3 per tonne on Friday, typically making it unworkable for arbitrage shipments. Arbitrage is usually profitable when the EFS trades at about minus USD15 a tonne or below, though it also depends on other factors such as freight rates, according to traders. ARA STOCKS - Gasoil stocks held independently in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub dropped 7.9% to 2.4 million tonnes in the week to Nov. 19, data from Dutch consultancy Insights Global showed. - The data showed ARA jet fuel inventories fell 4.4% to 1.1 million tonnes.

As MRC informed before, slumping fuel consumption during the pandemic is accelerating the long-term shift of refining capacity from North America and Europe to Asia, and from older, smaller refineries to modern, higher-capacity mega-refineries. The result is a wave of closures, often centering on refineries that only narrowly survived the previous closure wave in the years after the recession in 2008/09.

Thus, in early November 2020, Royal Dutch Shell announced it was closing its refinery in Convent, Louisiana, the largest such US facility and first on the US Gulf Coast to shut down since the coronavirus pandemic devastated worldwide demand. The shutdown will occur this month after Shell failed to find a buyer. The refinery is the ninth in North America targeted for a shutdown or to be idled since the pandemic, which has dealt a heavy blow to fuel demand globally.

We remind that Royal Dutch Shell plc. said earlier this month that its petrochemical complex of several billion dollars in Western Pennsylvania is about 70% complete and in the process to enter service in the early 2020s. The plant's costs are estimated to be USD6-USD10 billion, where ethane will be transformed into plastic feedstock. The facility is equipped to produce 1.5 million metric tons per year (mmty) of ethylene and 1.6 mmty of polyethylene (PE), two important constituents of plastics.

Ethylene and propylene are feedstocks for producing PE and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers" inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
Author:Margaret Volkova
Tags:Asia, Europe, North America, PP, PE, crude and gaz condensate, PP random copolymer, propylene, HDPE, ethylene, petrochemistry, Shell, Russia, USA.
Category:General News
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