Singapore — Prolonged political protest in Hong Kong appears likely to continue taking a heavy toll on the city's oil consumption, with aviation fuel demand in particular trending sharply lower in recent months in tandem with faltering air passenger and cargo traffic volumes.
Declines in Hong Kong's latest jet fuel import data have raised alarm bells among Chinese and other regional aviation fuel suppliers, including South Korean refiners, as months-long protests could jeopardize the city's role as a key aviation hub and stable jet fuel supply outlet.
Hong Kong International Airport is the world's busiest air cargo hub, handling over 5.1 million mt of cargo in 2018. It also serves a vital role as an aviation hub within Asia and in connecting the continent to North America, handling over 65 million passengers last year.
However, air traffic volumes will likely take the full brunt of the impact of social unrest and esclating violence in the city, leading to an extended slide in jet fuel demand over the coming months.
Latest data from Hong Kong's Census and Statistics Department showed combined aviation fuel imports dropped sharply in September, falling 20.4% year on year and by 25.7% month on month to 3.63 million barrels.
Industry sources said jet fuel imports could continue to slide, at least in the near term, as downward momentum in both passenger numbers and cargo activity at Hong Kong International Airport gathers pace.
The city has been gripped by social unrest since June, with protests prompting a major airport shutdown on August 12.
According to latest Airport Authority of Hong Kong data, aircraft activity, passenger totals and freight volumes all sharply fell in October as the demonstrations intensified.
Freight volumes fell 5.6% on year to 419,000 mt in October, marking the seventh consecutive month of decline.
The number of passengers handled by the airport fell 12.9% on year to 5.36 million in October, the third consecutive month in which passenger numbers fell by more than 12% on the year.
"The disruption experienced in Hong Kong has also contributed to subdued regional passenger demand and led to sharp capacity cuts to/from this important hub airport," the International Air Transport Association said in a note last week.
JET FUEL SUPPLIERS FRET
Multiple Asian refiners have been fretting over the slowing air traffic in Hong Kong as the aviation fuel suppliers may soon struggle to sell their cargoes into the city.
Refineries in China supplied a total 1.06 million mt or 2.78 million barrels/month of jet fuel to Hong Kong in the third quarter, down 7.1% on year, latest data from China's General Administration of Customs showed.
South Korean refiners, which had been supplying around 800,000 barrels/month of jet fuel to Hong Kong over the past few years, managed to export only 1.24 million barrels over Q3, down 31.1% on year, latest data from state-run Korea National Oil Corp. showed.
"Hong Kong might not be a huge sales outlet, but the city has always been the steady supply route for South Korean jet fuel producers ... it's a worry to see such small export volumes in recent months," a market research manager at Korea Petroleum Association based in Seoul said.
Japan exported 1.835 million barrels of jet fuel/kerosene to Hong Kong over January-September, down 3.8% from the same period a year earlier, latest Ministry of Finance data showed.
NO END TO PROTESTS IN SIGHT
Industry sources also raised concerns over a possible extension to the current slowdown in broader economic activity, as the social unrest is unlikely to end any time soon.
IATA wrote that the key aviation hub remained "significantly impacted" and that the country's "business sentiment [has] dropped sharply as political protests continue to weigh on the country's economic backdrop."
The Beijing government's liaison office in Hong Kong was quoted as saying last Wednesday that the city was "sliding into the abyss of terrorism" as city-wide unrest led to road closures following open conflict between police and protesters.
Compounding the woes, the US and China have yet to sign an agreement to cease, delay or rollback tariffs, despite US President Donald Trump's assertion that he had reached a "substantial phase one deal" in October.
"Unresolved trade frictions have undermined business confidence and disrupted global supply chains ... operating conditions are challenging for Asian carriers," Association of Asia Pacific Airlines Director General Andrew Herdman said in the group's latest monthly circular.
Reflecting the region's downbeat airline traffic growth outlook and tepid aviation fuel demand, Singapore jet fuel/kerosene was assessed at a discount of 62 cents/b to the Mean of Platts Singapore assessments on an FOB basis last Thursday, the lowest since hitting minus 87 cents/b on February 1.
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