Chinese jet fuel remains bright spark in latest export quota tranche

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Neo Rong Wei:

Hello and welcome to the Platte's Commodities Focused podcast, a series by S&P Global Commodity Insights. Today let's break down China's second tranche of oil product exports for the year and what this means for the regional markets. In the latest round, China's Ministry of Commerce had issued about 12.8 millimetric tons of quotas to export gasoline, gas oil, and jet fuel, which is about 9% lower on the year amid a worsening international trading environment, which comes on top of existing tax rebate cuts as well as poor margins. Let's find out how all of these could shape China's oil markets as well as the wider Asian markets.

I'm Neo Rong Wei, Asia Oil news editor. And with me I have market specialist, Daisy Xu, and associate price reporter, Lee Shu Ling, who covers the regional jet fuel and kerosene markets. Now to start things off, let's start with you first, Daisy. Could you talk us through the latest batch of export quotas and what's different about it?

Daisy Xu:

Thanks, Rong Wei. In the second batch, about 12.8 millimetric tons of quotas were allocated for clean fuels, namely gasoline, gas oil, and then jet fuel. The volume was done by 9% from the same or last batch. We think that's reasonable because the quotas were allocated one month earlier than last year.

But we want to point out that about four millimetric tons of export quotas were allocated to the processing trade road. But there last year there was nothing under the same batch. We believe this was within the market expectation as oil companies, they want to save about three or $4 per barrel in tax costs because since December 1st, the Chinese government has reduced the value added tax rebate from 13% to 9% for the exporting of gasoline, gas oil, and then jet fuel.

So this will mainly affects the export and the general trade route. So gasoline and the gas oil will be mostly heat, but jet fuel, which is exported and the processing trade route can be exempt from the new policy. So we believe the increment volume of processing trade quotas will mostly go for jet fuel. And in China this is usually carried by sending to the field cargo to the international airports to fill the outbound flights.

Neo Rong Wei:

I see. So it does seem like the greatest difference here would be the added quota for processing trade. Like Daisy, you rightfully explained earlier, this set of quota is largely used for bonded jet fuel meant for international flights refueling at China's airports. And of course, under this scheme it exempts refiners from taxes on crude imports and oil product exports. So Shu Ling, from your point of view, how do you think this batch of quotas would actually impact the wider Asia market?

Lee Shu Ling:

Great question, Rong Wei. So favorable tax rebates have driven the increase of China's bonded jet fuel supply in 2025 compared with 2024 according to market sources. Despite more quotas allocated under the processing trade route in the second batch, China's sea-born jet fuel exports under the general trade route are expected to remain abundant amid ample quotas from the first two trenches. Coupled with steady supply from South Korea, the complex currently remains under pressure with the market structure seen softening following the release of the second batch of Chinese export quotas. Overall, China's export plan remains a key factor affecting the wider Asian jet fuel market and is closely followed by market participants.

Neo Rong Wei:

Now this move also comes as China has been seeing dwindling export margins as well. So Daisy, how do you think this may actually change China's export plans in the trenches ahead or even beyond that?

Daisy Xu:

So in general, we believe the latest export quota will not have lifted the export plans March for April because of the weak margins. We know the export margins for both gasoline and the gas oil were still negative. For example, gas oil was at a loss of $1 per barrel and the gasoline was at a loss of $3 per barrel, but it was improving in the past few days.

So it's possible that the Chinese oil companies will increase the exports in the future if the margins are better. But for the time being, we heard that Chinese oil companies are planning to export about 3.2 millimetric tons of clean fuels in April. This include 2.2 million metric tons of jet fuel, 0.6 millimetric tons of gasoline, 0.4 millimetric tons of gas oil.

In total, the volume was lower from March because last gasoline and the jet fuel were planned. This is for April, but in January we believe the whole export quota for 2025 will be stable from 2024 because the government is not encouraging those companies to export more this year.

Neo Rong Wei:

Right. It seems like the performance or the margins for jet fuel remains fairly healthy. Now I think the big question remains, would jet actually be the king of the barrel for China's exports in 2025 then? And what about beyond that? So maybe, Daisy, let's start with you first on China's point of view.

Daisy Xu:

Thanks, Rong Wei. Refinery source have said that the export margins for gasoline and the gas oil is still very poor, but jet fuel is much better. For example, they say the jet fuel export margin is about 300 yuan per metric tons higher than that of gasoline. So it's very likely they will increase their export plans in the future. Also, we note that Sinopec has got three millimetric tons of export quotas and the processing trade route. And they have got in total nearly seven millimetric tons in the first two batches. So they have been a major player for the exporting jet fuel and the proceeding trade route. So let's watch and see what they will do.

Neo Rong Wei:

Now, Shu Ling, would you like to add on with a broader perspective on what's happening in the aviation markets?

Lee Shu Ling:

So given that China's jet fuel export margins will likely remain in the lead, market sources expect Chinese refiners to continue prioritizing the export of jet fuel in 2025. Thus the availability of jet fuel kerosene supply across the region will likely remain healthy. On the aviation front, global air passenger demand grew at a slower pace in February, posting a year-over-year increase of 2.6% in 2025 compared with 21% in 2024 data from the International Air Transport Association showed.

However, downside risks persist as supply chain challenges such as delayed aircraft delivery and a backlog in engine maintenance continue to pose a threat to the industry's ability to meet travel demand this year. According to the association, aircraft deliveries in 2024 fell 30% short of expectations. While the number of unfulfilled new aircraft orders reached a peak of 17,000 planes, which would take roughly 14 years to fulfill. Still, the demand outlook for March remains largely positive, reflected by an upswing in scheduled capacity OAG data showed.

Neo Rong Wei:

Now it largely seems like it's going to be clear skies ahead for the aviation industry then. So earlier that was associate prize reporter Lee Shu Ling on the wider aviation market. And we've also heard from market specialist, Daisy Xu, on the Chinese market. So thank you both for joining me in this conversation and of course, to you, our listener for staying with us as well. This Commodities Focus episode was produced by Shi Ka-shing in Kegau.