China's ZPC restarts LSFO production in Feb with higher export quota: source

Chinese refining and petrochemical company Zhejiang Petroleum & Chemical, or ZPC, restarted production of low sulfur fuel oil in February after more than a year of suspension, with an output of about 50,000 mt, a company source said March 4.

The Chinese government awarded 100,000 mt of LSFO quota to ZPC as the first batch for 2022, S&P Global Commodity Insights reported previously. ZPC received 390,000 mt of LSFO export quota in 2021, but the company later converted a large part of the quota for other products, as it did not produce LSFO last year.

Prior to 2021, the company's output was unstable from 30,000 to 100,000 mt/month, according to the source.

Out of 50,000 mt, around 20,000 mt could have been loaded and exported since late February, according to a trade source in Zhoushan.

"They will continue to export in March, within the quota volume," said the source, adding that it's easier for ZPC to sell in the Zhoushan bunker market, which is quite close to its refinery.

ZPC operates a refinery with a capacity of 40 million mt/year in Zhoushan. The refinery has been running at around 85% to 90% of the capacity since late January, S&P Global reported earlier.

Zhoushan bunker market remains well supplied

With increasing output from the domestic refinery, Zhoushan's bunker market is well supplied.

"It seems oversupplied," said a bunker supplier in Zhoushan.

Bunker fuel supply in Zhoushan is rising as Beijing issued a higher export quota for 2022, market sources said. The Chinese government issued 6.5 million mt of LSFO export quotas to CNPC, Sinopec, CNOOC, Sinochem and ZPC in the first round of 2022, up from the 5 million mt allocated in the same round in 2021.

On the other hand, bunker demand dropped amid surging crude oil prices as shipowners are buying the minimum amount of their necessary volumes, market sources said.

Zhoushan's delivered marine fuel 0.5%S has lost $4-$12/mt compared to Singapore since Feb. 9, while Zhoushan was 62 cents/mt lower on average than Singapore in 2021, S&P Global data showed.