China’s 2021 distillates exports may fall sharply on quota cuts

SINGAPORE (ICIS)–China’s total distillates exports, including gasoline, gasoil and kerosene, are expected to fall by at least 19% this year due to steep cuts in its export quotas.

China issued the year’s second batch export quotas for 7.5m tonnes of distillates, a sharp decline of 73.24%, compared with last year’s second batch quotas, according to industry sources citing a document issued by the Ministry of Commerce (MOFCOM).

The sharp cuts in export quotas indicate a significant policy change because the Chinese central government had encouraged distillates exports over the past four years. (See Chart 1).

Due to the much reduced second batch quotas, the total distillates export quotas issued in this year’s  first two batches amounted to 37m tonnes, down by 33.96% from last year’s first two batches, according to MOFCOM data. (See chart 2).

The second batch export quotas is typically released in late March or early April, but this year’s was issued only in early August.

The unusual delay and sharp cuts in the second batch quotas have led to speculations in the industry that the MOFCOM may not issue the third batch of export quotas this year.

If the third batch export quotas are not issued this year, China’s total distillates export in 2021 is estimated to be up to 37m tonnes, down by about 19% from last year’s total exports of 45.74m tonnes.

Chinese distillates exporters are estimated to have used up 94% or 27.73m tonnes of the first batch quotas, based on the January-June trade data from the China General Administration of Customs (GAC) and ICIS research.

Chinese exporters are estimated to have at least 9.27m tonnes of export quotas that can be used during August-December, ICIS data shows.

Chinese major exporter PetroChina suspended distillates exports in July as it used up its first batch export quotas in June, refinery sources said.

With the new quotas released, PetroChina’s subsidiary refineries will resume exports in August, but their export volumes may not be the same as their pre-July levels, due to the much reduced second batch quotas, refinery sources said.

Despite the cuts in distillates export quotas, Sinopec’s and PetroChina’s subsidiary refineries have no plans to reduce throughput for the rest of the year, as in the absence of instructions to do so, most of them are sticking to the original throughput plans set out early in the year.

As state-owned refiners have not announced plans to cut throughput amid the bearish distillates export outlook, there are concerns that the domestic distillates oversupply will worsen in latter part of the year.

However, the domestic distillates oversupply may ease due to a shortage of crude import quotas in the private independent refinery sector following the recent crackdown on crude import quotas trading, and a tightened blended gasoline and gasoil supply in China.

Output from standalone gasoline and gasoil blenders have fallen sharply since a consumption tax was imposed in June on imported blending components.

The restraints on crude import quotas and distillates export quotas are in line with China’s emission goals.

China has pledged to achieve peak carbon by 2030 and carbon neutrality by 2060.

MOFCOM has also issued a second batch export quotas for 3m tonnes of very low sulphur fuel oil (VLSFO), according to the document from the MOFCOM.

China has issued 11m tonnes of VLSFO export quotas to date, up by 10% from the total export quotas last year (see chart 3).

The increased VLSFO export quotas is in line with China’s ambition to develop itself into a major bunker fuel hub in Asia.

Analysis by Yu Yunfeng and Anita Yang