China’s Fuel Demand Recovery Could Boost the Tanker Market

The tanker market could stand to benefit from an increase in China’s fuel demand. In its latest weekly report, shipbroker Intermodal said that “China’s GDP is forecast to rally 3% y-o-y and reach 5.5% following the country’s exit from its strict zero-covid policy. The elevated economic growth will eventually lead to fuel demand recovery. Indeed, amid the sharp increase in passenger flights and road traffic, as well as signals that China’s massive refining sector is speeding up processing rates, there are undoubtedly a plethora of signs that the country’s demand for fuel is steadily recovering”.

According to Intermodal’s Research Analyst, Ms. Chara Georgousi, “during 2023, China’s crude imports are forecast to hit 11.2 million bpd, which represents a 10% y-o-y growth. The key driver behind this surge is post-covid domestic fuel demand recovery paired with the second batch of export quotas issued in January 2023. Meanwhile, the expected startup of the two greenfield refineries, Shenghong Petrochemical which is based in Lianyungang port of Jiangsu province, and PetroChina’s Jieyang refinery located in the southern province of Guangdong, with a combined capacity of 720,000 bpd will also contribute to the country’s increased demand for crude. In terms of import origin, Saudi Arabia is expected to be displaced by Russia as the top oil supplier in 2023. More specifically, total imports from Russia will grow by 1 million mt in 2023. In this scenario, we could witness a 30% y-o-y growth in seaborne imports of Russian crude versus a 7.6% registered y-o-y growth in 2022. ESPO cargoes will remain elevated and will represent the larger number of seaborne shipments. Imports of Urals crude will also increase but at a lower rate. In addition, the country has already begun to receive heavy sour Arco from the port of Murmansk for the first time in 2023. Imports from Saudi Arabia are projected to remain stable, underpinned by the incremental demand of 320,000 bpd from Shengdong Petrochemical’s new refinery, which is designed to exclusively process Middle Eastern grades. On the other hand, imports from the US are forecast to further contract in 2023, after registering a 46% y-o-y contraction in 2022, amid a ban that prohibits the Biden administration to sell crude from the SPR to China”.

She added that “China’s refining capacity is estimated at 18.8 million bpd, a 2% y-o-y increase from 18.5 million bpd in 2022. The projected growth is attributed to a combined 500,000 bpd from the expansion of Sinopec’s Hainai refinery and the startup of PetroChina’s new refinery within the year. Processing rates from the country’s state-owned refineries will rise to 80% from 74% in 2022. Processing rates at Shandong teapot refineries are also projected to remain elevated and further increase, amid a flurry of discounted cargoes received in the latest months which allow them to make huge profits”.

“China’s demand for gasoil and gasoline is set to rally in 2023 amid easing COVID-19 restrictions and the reopening of borders after a 3-year zero-covid policy. Gasoil production is set to increase by 3% y-o-y to 150.13 million mt in 2023, while gasoline production is set to increase by 6% y-o-y. Combined exports of oil products are expected to rise 8% y-o-y to 37 million mt, amid the latest batch of export quotas issued in Jan-2023 by the country’s governments paired with the recent ban of the EU to seaborne imports of Russian oil products, effective since Feb-5. Gasoil exports are forecast to rally 50% y-o-y to almost 22 million mt in 2023, amid the current profitable yields. On the other hand, exports of gasoline will slump 40% y-o-y to 7.56 million mt as the recovering domestic demand will absorb a larger tranche of the country’s total supply”, Georgousi concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide