Platts: China’s apparent fuel oil demand more robust than actual consumption

China’s apparent demand for fuel oil has registered significant double-digit growth this year, although this is not likely to reflect actual consumption by end-users, traders and analysts said.
According to Platts’ calculations, apparent demand for fuel oil in China rose 11.9% year-on-year from January to May 2013, totaling 17.66 million metric tons (mt), or close to 760,000 barrels per day (bpd). Growth in May was more pronounced, surging 27.3% year-on-year to 3.67 million mt.
China does not publish demand or consumption data. Platts calculates apparent demand for a particular oil product by taking into account net imports plus domestic production in refineries. It does not include inventories, which are not officially reported by companies or the government.
China remains a net importer of fuel oil, although import growth has slowed, to just 3.9% year-on-year to 12.51 million mt of gross imports from January to May. Exports rose 4.4% to 5 million mt, bringing net imports over the period to 7.51 million mt, a 3.4% increase year-on-year.
The increase in output for May 2013 was partly attributed to some refinery units returning to operations following seasonal maintenance.
For example, state-owned PetroChina’s 10 million mt/year Qinzhou refinery in southwest China’s Guangxi province was shut completely for two months beginning in March.
Despite the relatively higher supply compared with last year, traders said buying activity for fuel oil has been slow in the last two months given stagnant demand.
Last month, although China saw unusual sources of fuel oil from Iran, Malaysia, Kazakhstan, Indonesia and Turkey, which helped boost total import volumes by 19.9% year-on-year to 2.83 million mt, it reduced fuel oil imports from top suppliers Russia and Venezuela by 23.9% and 34.8% respectively, compared with May 2012.
Imported fuel oil in China is used mainly by small, independent teapot refineries. Shandong province in eastern China has the highest concentration of these refineries, with capacity totaling about 104 million mt/year, according to Beijing-based information provider JYD Commodities Hub.
The small refineries can crack domestic crude and straight-run fuel oil, but due to the limited availability of these feedstocks, they rely on imports. They buy crude from state-owned Sinopec, PetroChina, and China National Offshore Oil Corp. as they do not have crude import licenses themselves, topping up their feedstock with straight-run fuel oil, primarily from Russia and Venezuela.
Much of the excess supply has ended up in storage. According to data from JYD, fuel oil inventories in major storage facilities in eastern China’s Yangtze River delta rose 35.2% from April to 730,000 mt in May.
Horace Tse, analyst at Credit Suisse, said it was still too early to determine if there was a structural demand weakness in fuel oil as overall oil demand typically picks up in the second half of the year because of summer grain harvesting and winter heating needs later in the year.
(June 28, 2013)