New Chinese product export quotas may spur year-end rise


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By Matt Wright, Senior Analyst SSY Research

 

A new round of Chinese product export quotas could result in a rise in exports in the final months of the year in order to reduce high stock levels, potentially supporting Asian MR and LR freight rates but also putting further pressure on refiners elsewhere in Asia.

On November 21 the Chinese Ministry of Commerce approved a third round of oil product export quotas for 2020, totaling 3M T (around 60K b/d), raising the total to 59.03M T (around 1.2M b/d), a 5.4% increase on last year, newswires report.

However, given that global oil demand is still in the process of recovery, it is unlikely the full quotas will be used this year. From January to October this year, China exported 38.7M t (1M b/d) of clean products, according to China Customs data. This means it has around 20M T (2.5M b/d) of available quotas to use in the remaining two months of the year.

 

Source: China Customs

It seems one of the main reasons for the new round of quotas was the inclusion of 1M T for Rongsheng’s Zhejiang PetroChemicals (ZPC). This is the first allocation of export quotas to a private refiner in China in four years. In 2016, China trialed allocating export quotas to independent refiners but it was not continued. The inclusion of quotas for private refiners at this point in the year is a sign the government wants to use all available resources to help reduce the glut in stocks. The recent start-up of ZPC’s 400K b/d refinery expansion, which increased total capacity to 800K b/d, was also likely a factor.

The increase in quotas will likely result in a boost in exports as refiners look to use up their remaining volumes in order to secure similar levels next year. This should see product tanker demand rise, potentially supporting tanker rates. But, by forcing more volume on the market while demand is still slowly returning will heap pressure on refining margins across Asia which could lead to sustained low run rates among exporters such as South Korea.

 

By Matt Wright

 

Market reports and research publications are provided for general information only. They do not constitute advice or amount to a recommendation to enter or not to enter any specific transaction. While every care has been taken to ensure that the information in these publications are accurate, Simpson Spence Young accepts no responsibility for any errors or omissions or any consequences arising therefrom. Figures are based on the latest available information, which is subject to subsequent revision and correction. The views expressed are those of SSY Consultancy and Research Ltd and do not necessarily reflect the views of any other associated company. Reproducing any material from this report without permission from Simpson Spence Young is strictly prohibited.

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