Chinese refiners are likely to increase diesel exports sharply from late June into July to cash in on higher cash premiums and margins in recent weeks after keeping shipments steady in the previous two months, traders and analysts said.
China’s diesel exports in July are on track to rise to 800,000 metric tons or more, early estimates from Chinese consultancies Longzhong, JLC and three trading sources showed.
This would be up from June’s forecasts at between 500,000 and 637,000 metric tons, according to the consultancies, Refinitiv and three trading sources.
Key exporters include Asia’s largest refiner Sinopec 600028.SS, PetroChina 0386.HK, Sinochem and CNOOC 0883.HK.
The rise in exports comes as Asia’s spot premiums for gasoil containing 10 ppm sulphur GO10-SIN-DIF have been rising for the past six weeks while Asian refiners’ margins – or “cracks” – for the fuel have recovered more than 50% in June from end-April.
“Improving Asian (gasoil) cracks since second-half May and weak domestic demand will likely encourage more Chinese refiners to increase exports soon,” said Vortexa analyst Emma Li.
“Furthermore, demand from construction activity might be capped if extreme hot temperature happens, so domestic demand in July is likely limited and refiners can capture good export margins.”
Some analysts however are cautious on the pace of increase from Chinese exporters, given that maintenance season has just ended.
“We don’t expect Chinese majors will expand their exports (that) quickly after maintenance seasons, but they may expand their sourcing from teapots and divert more their own oil products to export markets if the arbitrage window opens,” Energy Aspects analyst Sun Jianan said.
For the second quarter, total diesel exports will likely fall to about 1.84 million tons, sharply lower than the 5.98 million tons in the first quarter, according to traders’ estimates – taking into consideration current June loading cargoes.
“In addition to healthy domestic demand in March and April, which was supported by infrastructure construction projects, unfavourable export margins continued to prompt refiners to export at minimum levels and to keep barrels in China,” said FGE analyst Liu Xuanting.
Heavy refinery maintenance in the second quarter also reduced China’s refined products supply, said Sun of Energy Aspects.
Chinese refiners were likely to have used up 74% of allocated oil products export quota by the end of June, leaving about 7.3 million tons available from July, Refinitiv Oil Research said in a report.
Energy Aspects’ Sun expects the next batch of oil product export quotas to be issued in July.
Chinese exports could tilt Asia’s supply-demand balance in July and August as other northeast Asian refiners are also expected to ramp up third quarter output after maintenance season, a Singapore-based trader said.
Source: Reuters (Reporting by Trixie Yap; additional reporting by Chen Aizhu, Graphics by Matthew Chye, Editing by Florence Tan and Michael Perry)