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Japan's refiners reviewing supply plans beyond March as flight cuts to China mount

Highlights

ANA cutting more flights to China

One refiner may import one MR-sized jet cargo less in March

Tokyo — Japan's refiners are reviewing their supply plans beyond March as major airlines make further cuts in flights to China in response to the coronavirus outbreak.

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Flights to China by Japan's top two airlines -- All Nippon Airways and Japan Airlines -- are now expected to be down 76% and 65% respectively in early March, according to data compiled by S&P Global Platts Wednesday.

The impact from the airlines' flight suspensions on Japanese refiners' overall jet fuel demand is so far limited but demand is expected to decrease further next month, according to refiner sources.

Given the developing situation, one Japanese refiner is now looking at reducing imports in March by one MR-sized jet fuel cargo, a company source told Platts.

Another Japanese refiner is also looking at crude run cuts in March due in part to decreasing jet fuel demand, according to a company source.

Japan's crude throughput fell to a 17-week low in the week of February 9-15, when local refiners processed 20.05 million barrels or 2.86 million b/d as they slashed their jet fuel output by 33.3% on the week to 1.29 million barrels, according to the Petroleum Association of Japan data.

Japan's crude throughput was last lower at 2.81 million b/d over October 20-26.

Japan's jet fuel demand for domestic and international flights stood just below 14 million kl or 88.06 million barrels in the fiscal year ended on March 31, 2019, according to the country's largest refiner JXTG Nippon Oil & Energy.

PRICE IMPACT

The onslaught of flight cancellations from various airlines in Asia led the March Singapore jet fuel swap to fall to $62.58/b at the Asian close Tuesday, marking the lowest level in over 30 months since August 23, 2017, when it was assessed at $62.04/b, Platts data showed.

The front month March/April timespread, meanwhile, remained in a contango structure of minus 14 cents/b at the Asian close Tuesday, translating to a 47-cent/b drop since the beginning of the year. As of 0300 GMT Wednesday, brokers pegged the spread at minus 15 cents/b.

Further bearishness in the jet fuel/kerosene market can also be expected with the Q2/Q3 quarterly spread falling to minus $1.16/b at the Asian close Tuesday, down $2.20/b from the start of the year, Platts data showed.

ANA is reducing weekly flights to China to just 80 flights as of March 3, down 76% from 330 before the outbreak due to massive booking cancellations following the coronavirus outbreak. ANA's flight reductions cover Wuhan, Beijing, Shanghai, Qingdao, Dalian, Hangzhou, Xiamen, Shenyang, Guangzhou, Chengdu and Hangzhou.

JAL's weekly weekly flights to China are down to 34, 65% lower from 98 flights prior to February 6. Starting on March 1, JAL will also suspend one of its two daily flight services to Busan as well as suspending a daily flight service to Seoul in South Korea. It has cut a number of its flights to Hong Kong on February 21 as well as cutting flights to Taipei in Taiwan from March 5.