China will push ahead with hefty exports of auto fuels in April as it strives to draw down bulging inventories, with the surprise pump price increase on Wednesday deemed too small to discourage outflows.The country’s heavy fuel exports, a trend seen since the start of the year that could reinstate China as Asia’s top seller of gasoline, are a hint that consumption may not have been enough to absorb refinery output and drain stockpiles.
Exports of gasoline for April by China are set to hit at least 300,000 tonnes, steady to revised estimates of 290,000 tonnes for March shipments, traders said.
Estimates for diesel exports next month stood at 250,000 tonnes so far with the final programme yet to be finalised, nearing the 300,000 tonnes seen for this month, sources said.
“Right now, there’s still a lot of fuel in the country. The most important thing is still to lower domestic fuel stockpiles, so the heavy exports will still continue,” said a Singapore-based trader familiar with China oil trade flows. Despite a sharp rebound in domestic fuel sales and higher autofuel exports in February, fuel inventories last month rose 11 percent versus end-January, enough to cover two weeks of domestic consumption where the norm was for seven to 10 days.
China has been saddled with record-high fuel inventories — remnants of its stockpiling efforts for the Olympics — and slumping consumption due to the global economic slowdown, prompting sharp curbs on refinery output during the fourth quarter.
Refinery runs have increased recently, with February output recorded at the highest daily rate in four months, as state refiners hoped to capture any nascent improvement in demand. The higher production was also seen prompting the sustained high volume of exports.
“If you add up the entire refining system in China, factor in exports and domestic demand, the market still isn’t balanced, therefore the high exports and rising stocks,” said a trader.
The high inventories and higher crude runs have prompted Sinopec, Asia’s top refiner, to resume spot gasoline exports after more than year’s absence from that market.
China’s net exports of gasoline stood at 286,308 tonnes in February and diesel exports hit a decade high, with net outflows at 211,096 tonnes.
LIMITED IMPACT
The 3-5 percent hike in gasoline and diesel prices on Wednesday would not deter consumers and export plans alike, because the adjustment was too thin, traders said.
“The increase is small, so I doubt there will be a significant impact on consumer demand,” said a trader.
The move might be the motivation middlemen and wholesalers need to refill their tanks, on the belief that domestic prices were on the rise.
While this in effect could help drain stockpiles at the refineries, it might not necessarily resolve the issue of high stocks across the country if consumption does not improve during the current economic slowdown, industry sources said.
On the exports front, the regional market for both auto fuels may also see limited impact from the high April exports with the volumes already factored in by some traders and offset by refinery maintenance works in other countries.
“From what I see, even if China’s April gasoline exports really stand at a minimum of 300,000 tonnes, the market impact will be limited, as most traders would already have factored in these amount. Its February exports were already very close to 300,000 tonnes,” said a trader in Northeast Asia.
“My estimate is that India will reduce its gasoline supplies because Reliance will have a maintenance. This could offset the exports from China,” he said.
Refinery turnarounds and run cuts around Asia have also supported gas oil supply and demand fundamentals, with the cracks rising to above $11 a barrel on Wednesday from around $5 earlier this month.
