This year, a healthy appetite for gasoline is expected in China propelled by structural as well as cyclical growth elements, stated a recent market analysis by London based Barclays.Chinese gasoline demand grew by an average of 12% (221 thousand b/d) in 2012, ending the year achieving a new peak in consumption levels at 2.32 mb/d.In February, the Chinese government hiked the ceiling on retail gasoline prices by 300 yuan/mt (+3.5%) essentially offsetting the downward revisions executed in November. On average, the ceiling retail prices of China’s 90 RON gasoline has increased by 0.22 yuan/litre.
The upward revision is dwarfed even more when compared with the change in the price of China’s crude oil basket.
The last time retail prices were hiked in September, the 22-day rolling average of the Chinese crude basket (Cinta, Dubai and Brent) was up 7.6% (and the price hikes to gasoline lagged by 100 basis points, while for gasoil it lagged by 40 basis points).
This time around, the crude basket has increased by 5.4%, with the change in gasoline prices lagging by 190 basis points, and the change in gasoil prices lagging by 160 basis points.
For domestic refineries, the recent change in the gasoline price ceiling only provides a mild relief from the extreme pressure on their margins.
Sinopec is expected to realise around 110 yuan/ton of profit for incremental barrels processed, while PetroChina’s losses are expected to be narrowed to around 70 yuan/ton of incremental barrels processed.
This suggests that there is more room for upward revisions in order to improve domestic availability of supplies, provided inflation targets are met.
The change is unlikely to cap growth rates given the strong structural For consumers: The change is unlikely to cap growth rates given the strong structural growth momentum in the consumer market, as seen through the rise in sale of gasoline vehicles.
Also an initiative to waive highway tolls during four major holidays will offer 20 days of toll free holiday driving in 2013, supporting gasoline demand (which has grown y/y by 221 thousand b/d, 11% in 2012).
Further, a new tax on aromatics could decrease the attractiveness of blended gasoline and shift more demand to refinery products, although the implementation of this rule is still in flux.
Source: Barclays