COLUMN-China's net fuel exports showing up in product prices: Clyde Russell
(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, June 10 (Reuters) - Even though China's net exports of refined fuels were small in May, the impact on Asian product markets is becoming larger and likely to be sustained in coming months.
China exported a net 410,000 tonnes of refined products in May, equivalent to about 96,548 barrels per day (bpd), according to customs data released June 8.
While this is a small amount by itself, it's the second month this year that China became a net product exporter, something that had only happened three times prior to this year, the last time being as far back as January 2010.
In the first five months of this year, China was a net importer of just 1.47 million tonnes of refined fuels, equivalent to about 71,000 bpd, a drop of 73.8 percent from the same period last year.
In 2013, net product imports stood at 221,600 bpd and in 2012 they were about 311,000 bpd.
What these figures reveal is that China's net fuel imports have been trending lower for some time, but it's mainly this year that they have plunged, so much so that it's possible the world's second-largest oil consumer could become a sustained net exporter of products.
The main reasons for the change is China's refining over-capacity and slower than anticipated fuel demand growth as the economic growth rate eases.
China currently has close to 13 million bpd of refining capacity available since the commissioning earlier this year of two new plants with a combined capacity of 440,000 bpd.
Given that implied demand was 9.71 million bpd in April, it's clear that there is massive spare capacity in China's refining sector.
This has the impact of reducing the need for product imports, but also increasing the availability of fuels for export, especially since the new refineries tend to be configured for maximising output of middle distillates.
The breakdown of what products were imported and exported in May won't be available until later this month, but in the first four months of the year Chinese refineries slightly picked up the pace of diesel exports.
Net diesel exports stood at 76,676 bpd in the January to April period, just higher than the 75,151 bpd exported in the same period in 2013.
While this isn't a significant increase, it does come against the backdrop of slower fuel demand growth in Asia and Europe, the two main centres for diesel consumption.
The diesel crack, or the difference between Singapore diesel and Dubai crude oil, slumped in May, which suggests increased Chinese exports are hitting the market.
The crack was at $13.92 a barrel on June 9, close to the 3 1/2-year low of $13.54, hit on June 4, and almost 27 percent weaker down from the start of the year.
GASOLINE OUTPERFORMS DIESEL
The weakness in refinery profits on diesel stand in contrast to those for gasoline, where the Singapore price of 92-octane GL92-SIN-CRK was at a premium of $7.56 a barrel to Brent crude on June 9, up 15 percent for the year.
China has been a steady exporter of gasoline in recent years, but so far in 2014 it has reduced shipments, with a net 109,152 bpd being exported, compared to 114,983 bpd over the first four months of last year.
Car sales rose 11.6 percent in April in China from a year earlier, and given the majority use gasoline, in contrast to the popularity of diesel in Europe, demand growth for gasoline has been outstripping that of diesel.
But the main contributor to China's falling net imports of refined products is fuel oil, with net imports falling 28 percent to 240,678 bpd in the first four months of the year.
This has been driven by some of the smaller, independent refiners being granted permission to directly import crude, whereas before they used fuel oil.
Furthermore, poor profitability at other small refineries, known as teapots, has crimped demand for fuel oil for use as a feedstock.
The discount of 180-centistoke fuel oil in Singapore to Dubai crude was $11.78 a barrel on June 9, slightly stronger than the $12.65 that prevailed at the start of the year, but 41 percent lower than the 2014 peak of $8.34 on Jan. 17.
China's fuel oil imports in January were the highest since May last year, and the price decline since then has dovetailed with weaker buying.
The trend toward lower net fuel imports by China, and the possibility of the nation becoming a sustained net exporter, isn't going to affect all product markets equally.
So far this year the big losers are fuel oil and diesel. Whether this continues will depend on whether there is enough global growth momentum to boost demand for both marine and vehicle transport, the main uses for fuel oil and diesel.
But Asian markets should be able to factor in lower net imports by China for fuel oil, and higher net exports of diesel.
For gasoline, while China still has a surplus, robust domestic vehicle sales may serve to lower that, thereby curbing growth in exports of the motor fuel.
By itself, this doesn't necessarily mean higher gasoline cracks in Asia, but it certainly provides support to the current margins.
(Editing by Richard Pullin)
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