China's weaker yuan could trigger new wave of diesel exports
SINGAPORE : China is set to add to recent record diesel shipments as refiners take advantage of a lower yuan and export fuel into a market already suffering from oversupply and falling margins.
A weaker yuan makes Chinese exports more competitive and could help refiners such as Sinopec and Petrochina shed excess diesel as local demand falls amid an economic slowdown that has left storage tanks brimming.
The government has already more than doubled diesel export quotas for the year so far by granting additional allowances of 2.86 million tonnes in its third quarter review of domestic supply and demand.
"Even before the yuan was devalued, Sinopec and Petrochina had already increased their diesel exports volumes in the third quarter," a China-based oil trader said, adding that the currency devaluation would encourage another jump in shipments.
China's refiners look set to more than double diesel exports in August to 900,000 tonnes from July, giving this month the highest monthly volume on record.
"It is almost certain that quotas will be expanded for the rest of 2015," energy consultancy FGE said.
"With sluggish (domestic) diesel demand and surging diesel stocks, the NDRC is under intense pressure to grant export quotas to additional refineries," FGE said.
China's National Development and Reform Commission (NDRC) is due to adjust export quotas for the rest of 2015 in late August.
Chinese refiners do most of their business in dollars, but labour costs are paid in yuan, making China's workforce more competitive against regional competitors such as South Korea.
"It is predictable that Chinese refiners will increase sales into the regional diesel markets given the weaker yuan," said a source with a large South Korean refiner.
Another jump in China's exports would come just as Saudi Arabia - the world's top crude oil exporter - has stepped up diesel shipments from huge new refineries.
The oversupply has pushed Asian diesel profit margins
down by more than a third from February peaks, despite a rebound from lows hit in July.
The glut comes just as Asia's fuel demand slows. In particular, China's diesel use has been flat due to economic growth that has fallen to its slowest in decades and cut fuel consumption by trucks and machinery.
With car sales falling fast as well, local demand is expected to take another hit.
China controls oil product exports through quotas issued to refiners after quarterly reviews. Refiners can apply for more allowances once initial quotas are used up.
Source : economictimes.indiatimes.com