An uptick in Chinese gasoline export activity in the first half of May has sparked concerns over renewed oversupply in the region, turning sentiment among Asian gasoline market participants increasingly bearish, sources said.
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An estimated total of 260,000 mt of gasoline has already been offered on the spot market at the start of May by Chinese refiners, more than three times the 78,000 mt seen a month earlier, according to sources and open tenders seen by S&P Global Platts.
"Even now we can see that activity from China has picked up, which is very telling in that supply from China will likely go up in the months to come. In fact, we were very surprised that Chinese exporters had cargoes to supply for late May and early June," one gasoline trader said.
Independent refiner Hongrun Petrochemical in particular, has returned to the spot market after a five-month hiatus to offer 35,000 mt of 92 RON gasoline, its first export of product since December 2018.
Hongrun's exports could even increase further to 200,000 mt in the coming months, with the refinery utilizing the export quotas assigned to state-owned Sinochem, which holds a 13.01% stake in the independent refinery, Platts reported earlier.
INCREASE IN CHINA'S EXPORT QUOTAS
The increased activity came prior to the second round of Chinese oil product quotas, which upon release by China's Ministry of Commerce last Thursday, dented sentiment further.
Although lower than the 28.39 million mt expected by industry sources since early May, the 23.79 million mt allocation still brought total oil product export quotas up to 45.29 million mt, 5.3% higher than the same period last year.
"The first two rounds of Chinese oil product quotas already exceeded last year's quotas. No matter how we look at it, I think that we will have a lot of gasoline," a second source noted.
Of the total quotas in this second round, 9.09 million mt has been allocated for gasoline, more than double the 4.435 million mt total allocated in the first round after the quota re-allocation end of March.
"Even if Chinese exporters do not push out their cargoes in June, it will come in July. Regardless, supply from China will be higher," another Singapore-based market observer added.
Market participants also agreed that the higher allocation could even spur refiners to export more product to alleviate high domestic stock levels.
According to a market survey by information provider JLC, total gasoline stocks at the 44 surveyed independent refineries in Shandong were 8.8% higher on month to around 580,000 mt at the end of April, even with several refineries undergoing scheduled maintenance.
With independent Hengli Petrochemical refinery and Zhejiang Petrochemical adding 400,000 b/d in new capacity each this year, domestic inventory levels could surge and pressure exporters further should the growth in domestic demand for gasoline fail to keep pace.
Several state-owned refineries were reported to be adjusting their export plans in order to absorb the stock builds at the respective refineries. PetroChina's Guangxi Petrochemical, in southern China, planned to double its gasoline export to 140,000 mt from the two originally-planned cargoes. Sinopec's Gaoqiao Petrochemical will similarly export its first gasoline cargo in 2019 next month, sources from the refinery said. The refinery last exported around 30,000 mt of gasoline in December, one of the four cargoes exported last year.
"The stocks in the local market is a bit high, so we'll export more," said one refinery source Tuesday.
"The worrying thing is that there is a gasoline surplus domestically in China. This could drive more exports out into the market. This surplus could potentially get larger once Chinese refineries come back from turnarounds," another gasoline trader added.
Reflecting the growing bearishness over growing supply in the medium term, the FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures contract has since slipped in May, averaging $4.97/b over May 1-17, Platts data showed. In April, gasoline cracks averaged $7.24/b.
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