China's fuel oil exports rose for a third consecutive month in July to 1.60 million mt (326,722 b/d), which was up 13% from June but down 10% year on year, according to General Administration of Customs data.
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That meant year-to-date exports were down 7.7% at 10.69 million mt (320,114 b/d), with China's economic slowdown impacting trade flows and, in turn, bunker demand.
Of the January-July exports, 7.12 million mt were domestically produced barrels, as opposed to re-exported barrels from other origins, reflecting a 17.6% year-on-year rise in outflows, according to S&P Global Commodity Insights estimates based on the GAC data.
All the barrels exported so far in 2022 were under the customs warehouse trade route, suggesting they were exported for bonded bunkering at Chinese ports.
Import volumes classified under the general trade route, which implies inflows of feedstocks for domestic refineries, surged 65% on the year to 2.45 million mt during January-July.
Net exports of fuel oil jumped 47% month on month to 855,000 mt while fuel oil imports, under both bonded warehouse and general trade routes, slid 11% to 740,000 mt in July, the GAC data showed.
China lifted its LSFO production by 15% month on month to 1.51 million mt in July, the highest since the IMO 2020 mandate came into force and up from the previous high of 1.31 million mt, according to local information provider JLC.
"Margins for LSFO were super good in end June, early July, encouraging PetroChina to boost its production when Sinopec's key LSFO producer Shanghai Petrochemical was shut," an analyst with JLC said.
PetroChina produced 643,000 mt of LSFO in July, rising 15% month on month, JLC's data showed.
However, the country's output was set to fall in August due to declining margin, while PetroChina's quota availability was running low, market sources and analysts said.
PetroChina holds 4.09 million mt of the 12.25 million mt of LSFO export quotas issued by the government, allowing holders to refill bunker at China's bonded ports.
Zhoushan's bunker demand slows
Sluggish demand for low sulfur fuel oil at the North Asian bunker hub of Zhoushan since August pressured both the LSFO delivered and ex-wharf marine fuel 0.5%S premiums amid plentiful inventories, though bunker demand was firmer at other ports around China, according to market sources.
The Platts Zhoushan-delivered marine fuel 0.5%S bunker premiums over the benchmark FOB Singapore 0.5%S Marine Fuel fell to average $41.32/mt over Aug. 1-22 from $88.48/mt in July, S&P Global data showed.
Despite adverse weather events throughout most of July, bunker sales at Zhoushan outperformed market expectations as operational disruptions were initially expected to drag demand, local traders said.
Bonded bunker sales over January-July at the port of Zhoushan rose 14.5% on the year to around 3.29 million mt, while volumes sold in July reversed declines during the previous month to rise 32% to 530,310 mt, according to sources with knowledge of the matter.
High sulfur fuel oil bunker sales comprised close to 20%-30% of the bonded bunker fuel sold in July, with the steady HSFO demand in July extended throughout most of August, sources said.
As bunkering operations normalized late July, Zhoushan's suppliers were offering delivered 0.5%S marine fuel more aggressively to make up for the earlier losses in demand, traders also said.
Dwindling demand in the downstream markets since July was expected to also depress margins from the delivery of LSFO bunkers, whereas buying activity for ex-wharf marine fuel 0.5%S parcels also slowed since the second half of August, traders said.
The softening Platts Zhoushan-delivered 0.5%S marine fuel bunker premiums gradually narrowed spreads against the ex-wharf grade to average $11/mt over Aug. 1-22, compared to $35.45/mt in July.
CHINA'S FUEL OIL IMPORTS, EXPORTS, PRODUCTION ('000 MT)
Source: China General Administration of Customs