April 25, 2018 / 7:15 AM / in 7 months

China to issue rest of 2018 fuel export quotas in single round: sources

BEIJING (Reuters) - China is expected to issue fuel export quotas for the rest of this year in one allocation round rather than in batches, keeping the total allowances for 2018 unchanged from last year, according to two trading sources with knowledge of the matter.

Keeping the export allowances at around last year’s level of 43 million tonnes will heat up competition in the massive domestic fuel market, where there is already a growing surplus, with new plants due to start up later this year.

“We see modest refinery expansions in 2018, with around 160,000 barrels per day of new capacity coming online,” said Rui Hou, consultant at energy researcher Wood Mackenzie, although he added that increased demand would suck up some of the new capacity.

The surplus has led to record Chinese exports of refined products like diesel and gasoline. This has contributed to a sharp decline in Asian refining margins as refiners grapple with China’s excess as feedstock prices for crude oil surge.

Sukrit Vijayakar, director of energy consultancy Trifecta, said overall gasoline supplies in Asia were high, especially with China shipping out record volumes.

(For a graphic of China diesel, gasoline exports click reut.rs/2KeFXKv)

ONLY STATE-OWNED FIRMS

Just like last year, the quotas will only go to state-owned firms, the traders said.

China has so far issued 20 million tonnes of fuel export quotas for 2018, which means the government will set the rest of the year’s quotas at 23 million tonnes, they said, declining to be identified because they aren’t authorized to speak to media.

The new quotas are expected in early May, said one trader briefed on the policy.

The Ministry of Commerce, responsible for issuing the quotas, did not respond to a request for comment.

Apart from the changes in the way quotas are released, traders also expect Beijing to further cut the portion of quotas given under a tolling scheme in favor of general trade.

Under the general trade category, refiners get tax refunds after exports are completed or get a tax waiver on fuel exports, a policy that Beijing granted in 2016.

Under the tolling or processing rules, refiners are exempt from import taxes on crude oil that is bought from overseas for the purpose of producing fuels for export.

Oil products exported under the tolling rules are also exempt from export taxes, but have fixed volumes and time slots to export. Both crude imports and fuel exports in this arrangement are done under tight scrutiny by Chinese customs.

(For a graphic on Asian refinery profits click reut.rs/2JclKE3)

Reporting by Chen Aizhu in BEIJING; Additional reporting by Jessica Jaganathan, Henning Gloystein and Li Peng Seng in SINGAPORE; Editing by Kenneth Maxwell, Tom Hogue and Joseph Radford

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