Singapore — Australia's growing preference for cheaper gasoline supply from Europe will likely continue encouraging South Korean auto fuel producers to diversify their export outlets to the Americas, while the companies may also favor sending cargoes to Japan due to higher premiums it pays.
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Australia has been a consistent top five refined oil products export outlet for South Korea over the past decade, but the sharp downturn in the Australian dollar since the early second half last year has prompted the Oceania consumer to actively seek cheaper auto fuels outside the traditional Asian market in recent few quarters.
Australia's top three gasoline suppliers over January-November 2018 were South Korea, Singapore and Europe, according to data released by the Australian government's Department of the Environment and Energy, which cited Australian Bureau of Statistics as the source of the trade information.
Europe's share of the Australian market was 19.94% with import volumes of 7.23 million barrels over January-November 2018, rising exponentially from 0.01% in the same period in 2017, the data showed.
On the other hand, South Korea's share stood at 28.7% given imports of 10.40 million barrels, a sharp decline from 36.9% in the same period a year earlier.
The European gasoline market has stayed persistently weak since H2 2018, with pressure mounting in recent months as traditional buyers in West Africa and the US have tapered down demand due to ample domestic supply.
As a result of the limited arbitrage opportunities to the West, European suppliers have been prompted to look east for alternative routes. Sources have pointed at Australia as a favorable destination in this regard especially as demand for winter-grade gasoline is expected to increase as the country approaches the colder months.
"The European market is not doing very well now especially as demand from West Africa is not very strong. European players are in a mood to push cargoes away to whichever outlet is available," one market source said.
"Australia is the key market for South Korean refiners and its faltering demand for Korean oil products will put pressure on the gasoline producers to push barrels elsewhere or expand news markets," a senior official at Korea Petroleum Association based in Seoul said.
NEW OUTLETS IN AMERICAS
In an effort to fill the demand gap from Australia last year, South Korea has managed to find fresh export outlets in the Americas, sending 2.6 million barrels to Mexico and 805,000 barrels to Equador in 2018. South Korea did not export any gasoline cargoes to the two countries in 2017, latest data from Korea National Oil Corp. showed.
Gasoline shipments to the US also increased to 1.77 million barrels in 2018 from 1.3 million barrels in the previous year. South Korea's third largest refiner Hyundai Oilbank for one, has signed a deal in October last year to provide 2.1 million barrels of gasoline to Mexico's PMI Comercio Internacional during H1 2019.
"We expect this deal with Mexico's PIM to serve as a bridgehead for the expansion of exports of our petroleum products to the Latin American region," a company official previously told S&P Global Platts.
Industry sources noted that the Americas could provide a solution for South Korean auto fuel suppliers as exports to Southeast Asia has also been trending sharply lower amid growing self sufficiency in key markets in the region including Vietnam.
Vietnam was the third biggest export outlet in 2017, but South Korea's gasoline shipments to the Southeast Asian consumer dropped 44% to 15.29 million barrels in 2018 from 27,52 million barrels in 2016, pushing it out of the top buyer spot to third last year.
Vietnam's greenfield 10 million mt/year refinery at Nghi Son has been ramping up its run rates over the past several months and the start of domestic gasoline sales from the new refinery has helped Vietnam become more self-sufficient in auto fuel requirements and reduce the country's dependency on gasoline supply from South Korea.
JAPAN PAYS PREMIUM
KNOC data showed that South Korean refiners fetched higher prices per barrel on average for gasoline shipments to Japan than any other major Asian export destinations, making a case for the suppliers to ship more cargoes to the neighboring market.
South Korea's average realized gasoline selling price to Japan in 2018 was $79.55/b, higher than the $77.46/b paid on average by Singapore, which was last year's top export destination.
The average realized sales price from Vietnam was $78.64/b and Indonesia was $77.87/b. Industry sources indicated that Japan's tight domestic supply conditions bode well for South Korean auto fuel suppliers looking to send regular shipments to the neighboring market.
Japan remained a net oil product importer for the second year in a row in 2018. In 2019, Japan's import of gasoline may remain strong as long as domestic refiners keep their grip on domestic supplies tight, keeping the window for oil products inflows open, market sources said.
The country first became a net oil product importer in 2017 as its nameplate refining capacity fell sharply following local refiners' response to refining regulations that led to a squeeze in capacity.
The capacity cut has tightened Japan's supply and demand balance ever since, and has supported an increase in oil products imports especially during the spring and autumn refinery season over the last two years. South Korea has exported a total of 10.26 million barrels of gasoline to Japan last year, almost a two-fold rise from 5.92 million barrels exported in 2017.
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