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Chinese jet fuel exports to stay robust H2 Sep-Oct amid domestic COVID-19 travel restrictions

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Chinese jet fuel exports to stay robust H2 Sep-Oct amid domestic COVID-19 travel restrictions

Highlights

Tighter Southern Fujian travel restrictions dampen Chinese jet fuel demand

Chinese Sep jet fuel/kerosene exports to surpass 1 mil mt: traders

Chinese jet fuel exports are expected to exceed 1 million mt in September, a level not seen since April 2020 and well above the average monthly 663,000 mt exports over January-August, as the country's latest COVID-19 travel restrictions has severely impacted air travel to and from the southern province of Fujian, multiple industry sources told S&P Global Platts Sept. 21.

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This is the latest setback to the sustained recovery in the Asian jet fuel market amid rising COVID-19 infections in many countries in the region.

Given the surge in the number of COVID-19 cases in Fujian, Chinese authorities have imposed tighter travel restrictions out of Putian, Quanzhou, and Xiamen as of Sept. 14 to contain the virus spread.

The delta variant infections, which initially started at Nanjing and Guangzhou, has dragged the country's air passenger traffic lower since H2 July. Since then, local authorities have tightened preventive measures at two of the country's busiest air hubs, heavily reducing passenger flow. Air travel was expected to pick up in July and August during the school holidays, however, the spread of the delta variant since H2 July has delayed this recovery.

Commercial flights, on the other hand, have declined 50% in mid-August from mid-July, according to data from global flight tracker, Radar Box.

Prior to the latest set back in Fujian, flight flow had shown a robust comeback with the virus spread under control. During the first week of September, commercial flights had risen nearly 60% from the mid-August low, while Nanjing airport restarted operations Aug. 26.

Chinese refineries may seek to export more jet H2 Sep-Oct

The latest travel restrictions in Fujian may impact the 240,000 b/d Quanzhou refinery operated by state-owned Sinochem, sources told Platts.

"With domestic jet fuel demand in the province likely to be weighed [down] by the latest travel restrictions, the refinery may have to look to the export market to relieve some inventory pressure, especially with elevated run rates this month in response to the anticipated surge in jet fuel demand over the seven-day long [National Day] holidays in early October," a Singapore-based trader said Sept. 20.

A Sinochem source said the situation would force the company to concentrate on jet fuel exports from its Quanzhou refinery for the rest of 2021.

The refiner was heard to have sold a jet A-1 fuel cargo loading Oct. 10-12 late last week at a discount in the low-$1s/b to Mean of Platts Singapore jet fuel/kerosene assessments, FOB Quanzhou, Platts reported earlier. According to industry sources, there could be up to an additional two H2 October loading cargoes made available to the spot market depending on the full impact of the province's prevailing COVID-19 restrictions.

In comparison, at least three clips of South Korea-origin H1 October loading jet fuel/kerosene cargoes were heard sold at a premium of around 20-25 cents/b to MOPS jet fuel/kerosene assessments, Platts reported earlier.

The FOB Singapore jet fuel/kerosene cash differential flipped back to a discount of minus 6 cents/b Sept. 20, falling 15 cents/b from the Sept. 17 assessment of plus 9 cents/b, Platts data showed.

China's jet fuel/kerosene output faces travel bans, subdued blending demand

"Chinese refineries were already looking to ramp up exports of jet fuel/kerosene in H2 2021, due to lesser demand for kerosene blending to gasoil following the implementation of a Yuan 1,496/mt, or $29.32/b, consumption tax on light cycle oil, or LCO, imports into the country in July," a second trader told Platts.

However, this does not impact jet fuel consumption, which remains free from the tax, as China looks to encourage the revival of the aviation sector, Platts reported earlier.

Given weaker domestic air passenger demand in the country, China's jet fuel exports in August rebounded 39.1% from July and leapt 210.8% year on year to 921,200 mt, latest Chinese General Administration of Customs data showed.

Jet fuel is likely the only product with robust outflows for the rest of 2021 due to a significant surplus in the domestic market despite refineries having cut jet fuel/kerosene production by 19.8% from July.

However, the short-term demand outlook for Chinese jet fuel may not be all that bleak, should the latest outbreak be brought under control quickly, industry participants said.

"Platts Analytics has not adjusted our forecast due to the latest outbreak in Fujian, but are closely monitoring the situation. So far the control measure are within expectation," Wang Zhuwei, S&P Global Platts Analytics' manager for Asia Oil Analytics said Sept. 21.