China set to slash crude throughput, imports as coronavirus dents consumption

Singapore — Refiners in China are poised to slash crude imports and throughput over the coming months, as the nation's battle to contain the spread of coronavirus hits product consumption, with transportation, manufacturing and industrial activities all slowing down.

Industry experts and market analysts have recently revised down their forecasts for China's throughput in February and March by 600,000-1,000,000 b/d, with crude oil imports set to slow down accordingly in April and May.

"We conservatively cut 600,000 b/d from the previous projection for China's throughput in the coming two months, as demand for transportation fuels will slump due to travel bans, as well as extending the Chinese New Year holiday," one Beijing-based analyst with an international trading house said Tuesday.

A second Beijing-based analyst said they expected a reduction of about 540,000 b/d in product demand in the quarter when the epidemic peaks, which could be translated into 770,000 b/d of crude throughput.

At a same time, a Shanghai-based analyst predicted about a 1 million b/d reduction in throughput based on a 50% cut in gasoline consumption over 45 days.

Independent refiners in Shandong province have been reacting quickest among their peers, cutting run rate to 50% this week from about 64% last week, according to local information provider JLC.

China's refinery throughput went up 7.9%, or 880,200 b/d, on the year in 2019 to 13.09 million b/d, with historical high of 13.84 million b/d in December, data from National Bureau of Statistics showed.

The bureau didn't release monthly throughput for February, while the figure stood at 13.14 million b/d in March 2019.

S&P Global Platts Analytics has previously projected China's throughput growth at 4.9% in 2020.

Any reduction in throughput would lead to an unplanned build in crude stocks, as most of the February and March deliveries are already on their way.

Stock levels have discouraged buying interest for new deliveries as the April/May procurement cycle starts in February, the first Beijing-based analyst said.

China imported 10.16 million b/d of crude in 2019, up 9.5% year on year, according to General Administration of Customs data.

H2 OUTLOOK

Unlike the case with the SARS pandemic in 2003, analysts said they do not expect post-coronavirus activities in H2 to fully compensate for the throughput losses, despite a speedup in social, construction and industrial activities.

The Beijing-based analyst said post-coronavirus activities would boost China's throughput by about 100,000 b/d in H2 from previous predictions, smaller than the losses in H1.

"China's economy growth was in a very fast track in 2003 with a low basis, which was easy to generate a strong rebound. But it is not the case in 2020," the analyst said.

The country's GDP growth was at 10% in 2003, as opposed to its 27-year low of 6.1% in 2019.

Analysts had earlier said they expected China's GDP to slow further to 5.8-6% in 2020.

In comparison, throughput was down 5% year on year to 4.33 million b/d in May 2003 when the SARS outbreak peaked. But it immediately recorded a 5.9% year-on-year increase in June and a 17.5% jump in July, helping to register almost 11% growth for the whole year.

The strong throughput rebound is unlikely to be repeated in 2020, with a bigger basis of over 13 million b/d, the analyst said.

"About 20,000 b/d losses in transportation fuel consumption in 2020 will not be compensated," the second Beijing-based analyst said.

He added that gasoil for long-distance coach suspensions and jet fuel consumption losses due to flight cancelations, as well as lower gasoline consumption amid nationwide self-quarantine would not be compensated for.

"All these transportation routes are scheduled with fixed capacities -- difficult to make up," the analyst added.

TRAVEL CONTROLS

Analysts are closely watching the epidemic situation and the government's reaction.

"The wider virus spread and longer transportation controls will further damage consumption and China's crude oil demand," the first Beijing-based analyst said.

The country's top epidemic expert, Zhong Nanshan, said late Tuesday that the current quarantine measures and medical treatments are having a good effect, adding that he expected the epidemic to peak in 10-14 days then slow down.

The Chinese authorities have told people in the country to stay at home and cancel all Lunar New year celebration ceremonies as well as group tourism, extending the seven-day long holiday to more than ten10 days.

Almost all long-distance coaches in the country have suspended or limited operations, while air tickets are free to cancel or reschedule.

Wuhan city has suspended all public transportation services since January 23.