Chinese products export quotas double

China’s Commerce Ministry doubled first-quarter export quotas for clean products compared with a year earlier, according to Argus China Petroleum. The decision followed warnings by PetroChina and Sinopec that the domestic market faces a ballooning supply surplus.

Chinese companies are allowed to market a total 1.83mn b/d of gasoline, diesel and jet fuel overseas the first quarter of this year, up from 856,000 b/d in the same period last year (see Table 1). The Ministry has increased the allowances for PetroChina and Sinopec – the country’s main exporters of refined products – although neither of the companies utilised its full export quota in January–March 2015.

Net Chinese exports of gasoline, diesel and jet fuel were just 310,000 b/d in 1Q2015, customs data show, although the companies’ own estimates put the figure at 420,000 b/d. Exporters do not have to utilise their full quota in January–March 2016, but can roll over unused allocation throughout this year.

Bigger is better

China’s diesel export quotas increased to 627,000 b/d from 113,000 b/d a year earlier (see Table 1). ‘Overwhelming domestic products surpluses, especially of diesel, have forced PetroChina and Sinopec to push for larger export quotas,’ a Sinopec official said.

Production rose by 340,000 b/d in east China’s Shandong Province – home to three-quarters of the country’s independent refiners that are now allowed to process imported crude. The independents, known as ‘teakettles’, raised utilisation rates after receiving licences to import and quotas to refine imported crude. Those with the right to refine imports are operating at around 70% of capacity, increasing their crude runs to about 1.1mn b/d last year, Argus estimates. As a result, Sinopec has had to reduce production from its Shandong refineries by some 60,000 b/d to 570,000 b/d.

But even the teakettles’ utilisation rates are constrained by high stockpiles of finished products. Leading provincial independent Shandong Dongming Petrochemical (SDP) exported its first gasoline cargo in December 2015. But few of its peers expressed an interest in applying to the Ministry for product export quotas.

The Ministry has given teakettle plants a combined 42,000 b/d quota to export products in the first quarter. CNOOC is allowed to send 140,000 b/d abroad, while state-owned Sinochem has a quota for 82,000 b/d.

The government is allowing the yuan to weaken against the dollar, which is improving the economics of products exports. But Chinese oil companies are still notching up hefty losses on sales to the lower-priced seaborne market.

Companies are partially offsetting their losses on diesel and gasoline exports through increased currency hedging.