Refiners bullish on Chinese economy and demand recovery

Chinese refiners optimistic about the likelihood of an economic recovery in Asia’s top consuming nation in the fourth quarter and into 2023 as pandemic control measures ease, helping to boost domestic demand of petroleum products, according to the China-focused roundtable at the S&P Global Commodity Insights Asia Pacific Petroleum Conference in Singapore on September 28.

The optimism comes even as China faces near-term headwinds such as weak travel demand for the upcoming week-long National Day holiday, housing debt issues, foreign companies moving country’s supply chains, slowing goods exports and rising unemployment after a series of city-wide shutdowns from April to May.
“The most difficult moment has passed. Restoring consumer confidence is what the government must do and is doing,” said Sun Xin, director of Shenghong Petrochemical International, a trading desk at the new Shenghong Petrochemical refinery complex in Jiangsu province.
“We have already seen green shoots in the Chinese economy. Especially in September, we see more congestion in terms of transportation. We are seeing a better operating rate in refineries,” said Chen Hongbin, deputy general manager of Rongsheng Petrochemical (Singapore).

Rongsheng is a trading arm of the private Zhejiang Petroleum & Chemical refining complex, which restarted its 200,000 bpd No. 4 CDU last week after operations were suspended for seven months, and increased operating rates to around 95% of its nameplate capacity of 800,000 bpd versus 83% in August, according to data from S&P Global.

Unlike the second-quarter lockdowns, Chen said supply chain disruptions in manufacturing are rarely seen under current zero-COVID measures. He added that opening up was the ultimate goal of China’s COVID policies, but the process was gradual and would take time.

As a result, panelists said while manufacturing and infrastructure construction supported strong demand for diesel, gasoline and jet fuel consumption would only pick up when COVID measures eased further and international travel resumed. . Oil demand in the fourth quarter is expected to increase from the third quarter, while growth would be seen in 2023 due to weak bases in 2022, they added.

World oil demand

World oil demand
S&P Global estimates that Chinese demand for diesel will decline 0.3% year-on-year to 4 million b/d in 2022, gasoline will fall 7.7% to 3.3 million b/d and the jet fuel will drop 28.3% to 506,000 bpd.

Wu Qiunan, chief economist at state-owned PetroChina International, told the panel that China’s strong electric vehicle sales in 2022 also pose a threat to the recovery in gasoline demand. The PetroChina Planning & Engineering Institute has predicted that the adoption of electric vehicles will cause gasoline demand to peak in China in 2026.

Export for profit
Panelists said their petroleum product exports will be economy-driven despite the potential release of a final batch of quota allocations for 2022 with a volume of up to 15 million tonnes or 119 million barrels.

China has been the main contributor to the expansion of global refining capacity, “so we have seen that the global market is unbalanced if China stops exports or [reduces] at very small volumes during this summer,” Chen said.

He added that ZPC always sees economics as the most important factor in deciding when and what product to export. The refinery holds 2.36 million tonnes of gasoline, diesel and jet fuel export quotas, and is expected to gain an additional 600,000 tonnes in the potential new allocation.

Wu said ample inventories of crude and petroleum products allow refineries to choose the right time to maximize export profits, or to keep barrels at home until domestic demand picks up.

Recent market talk indicates that Beijing is poised to take a more lenient stance and give companies more flexibility to control their export volumes in line with market fundamentals and sales margins.

Refining competition
Petrochemical-focused refineries with integrated value chains and economies of scale are expected to survive intensive competition in excess capacity, panelists said.

“We believe in economy of scale, lower cost is better,” Chen said, adding that inefficient producers would be squeezed out of the market through economic means or administrative measures.

Wu said new Chinese refineries are integrated with high yields of petrochemicals to replace imports when demand growth for petroleum products slows, excluding small and simple refineries.

Beijing has set a target to cap China’s refining capacity at 20 million bpd in 2025. PetroChina’s 400,000 bpd Guangdong Petrochemical refineries and 320,000 bpd Shenghong Petrochemical refineries are expected to be commissioned in 2022, while about 149,000 bpd of independent refineries refining capacity was to be phased out, according to data from S&P Global.

Sun noted that refining and petrochemical bases help reduce transaction and logistics costs and maximize scale, while expanding the business chain to renewables, CCUS projects and new materials will help the industry. company to be competitive in the future.
Source: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/092922-appec-refiners-optimistic-on-chinas-economy-demand-recovery

Comments are closed.