Taiwan's Formosa to skip term gasoline contract in Q1 on low production

Singapore — Taiwan's Formosa Petrochemical will not have any gasoline sales contract on a term basis in the first quarter of 2021, as the producer is unlikely to have much gasoline for export during that period, a company source said Nov. 25.

"This year, we had the RDS [residue desulfurization unit] outage. Before the RDS restarts next year, our gasoline export volume will be low," the source said.

Formosa expects to restart its fire-hit No. 2 RDS unit in April 2021 at the earliest, after the 80,000 b/d unit was shut on July 15, S&P Global Platts reported earlier.

The RDS unit removes sulfur from residual fuel so that the low sulfur residue can be fed into the gasoline-producing residual fluid catalytic cracker.

With one RDS unit down, Formosa is running its two RFCCs at the 540,000 b/d Mailiao refinery only at around 75% of capacity on maximum propylene mode, Platts previously reported.

The company in July had signed a term contract to supply gasoline between August and December, but later canceled some of its term cargoes following the No. 2 RDS unit outage, a source with knowledge of the matter said.

Weak gasoline demand stemming from global lockdowns to control the spread of the coronavirus pandemic has also made Asian gasoline traders reluctant to enter a term purchase commitment with suppliers, on concerns there may be fewer outlets amid the weak demand outlook scenario.

"It's hard for sellers to sign term contracts for 2021 as demand is weak," the company source said.

A Singapore-based gasoline trader concurred, adding that he has no intention to buy on a term basis for 2021.

"All sellers want to sell term, but buyers won't do that, because you have to take delivery [whether or not there is an outlet]," the trader said.

With the uncertain gasoline demand outlook in 2021, traders undertake a risk buying gasoline on a term basis should there be no lifter for the cargoes.

MARKET IMPACT

The impact of Formosa's decision to skip its term tender in Q1 is, however, unlikely to provide a major boost to regional supply-demand fundamentals, sources said.

"The market has already priced in Formosa's low volumes ever since the fire [at the RDS unit]," another Singapore-based trader said, adding that the Taiwanese private refiner could likely tilt toward more spot cargo offerings should there be any short-term recovery in premiums.

Another industry source noted that "Chinese [export] volumes are more than enough to make up for Formosa's shortfall," highlighting that even in 2021, growth in Chinese gasoline barrels in the region as well as pressure from new refinery capacity will keep supply high.

In Q1 2021, gasoline output from China is forecast to average 3.865 million b/d, up from 2020's average of 3.6 million b/d, according to data from Platts Analytics.

Against bearish headwinds, the FOB Singapore 92 RON gasoline crack against front month ICE Brent crude futures averaged $1.90/b month-to-date, down from the $3.32/b average in October.