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Analysis: South Korea’s gasoline exports to Southeast Asia under threat

Asia’s healthy light and middle distillate cracks may not translate into stronger oil product exports for South Korea, as the start-up of Vietnam’s new refinery complex and Indonesia’s growing efforts to cut energy import bills could hamper Seoul’s gasoline sales to Southeast Asia going forward.

South Korea exported 5.7 million barrels of gasoline in July, down 15.8% from 6.77 million barrels in the same month last year, due largely to a sharp decrease in shipments to its main Southeast Asian markets of Vietnam and Indonesia, according to data from state-run Korea National Oil Corp.

The July export volume was the smallest since August last year when the country shipped 5.16 million barrels. The 15.8% decline also marked the biggest year-on-year slump since March this year.

“The decline was because Vietnam has increased gasoline output on increased production capacity … which means South Korea’s exports of the fuels are unlikely to rebound,” a KNOC official said.

Gasoline shipments to Vietnam — South Korea’s biggest auto fuel export outlet — more than halved to 1.19 million barrels in July, compared with 2.42 million barrels a year earlier.

South Korea had long shipped more than 2 million barrels of gasoline a month to Vietnam, but the volume started to decline in March this year.

For the first seven months this year, South Korea exported 13.66 million barrels of gasoline to Vietnam, down 15.3% from 16.13 million barrels in the year-ago period.

Asian refined product traders said gasoline and diesel margins have been trending higher in recent months, which would ideally work in favor of major oil product exporters in the region.

The gasoline crack — the spread between front-month Singapore 92 RON gasoline swap and front-month Dubai crude swap — averaged $8.81/b so far in August, compared to the $8.43/b average in July and $8.37/b in June, S&P Global Platts data showed.

The second-month Singapore gasoil to Dubai swap crack averaged $15.64/b so far this month, around $1/b higher than the July average of $14.54/b and June’s $14.76/b.

However, Vietnam’s greenfield 10 million mt/year refinery at Nghi Son is expected to ramp up its run rates over the coming months, painting a bleak outlook for South Korea’s gasoline exports to the Southeast Asian economy.

The traders noted that ample supply from Vietnam’s 130,000 b/d refinery at Dung Quat and the start of domestic gasoline sales from the new Nghi Son refinery would help Vietnam become more self-sufficient in auto fuel requirements and reduce the country’s dependency on gasoline supply from South Korea.

First trial runs at Vietnam’s Nghi Son refining complex began on February 28.

Its operator, Nghi Son Refinery and Petrochemical said in a statement late last month that the company plans to operate the plant at full capacity in early September, from around 50% in July, and 75% in August.

“Since the start of NSRP [in May], Vietnam has decreased gasoline imports from Korea and became self-sufficient in gasoline requirements,” a refinery source based in Vietnam told Platts.

Vietnam buys gasoline of the 92 RON or 95 RON grades via tenders on and off from the regional spot market.

However, spot gasoline purchases from Vietnam decreased sharply compared to last year with a total of 57,442 mt of gasoline sought via tenders so far in 2018, compared to 60,000 mt bought in just a single month of December 2017.

South Korea’s gasoline shipments to other main destinations in Southeast Asia, especially Indonesia, also dropped sharply.

Indonesia has recently stepped up efforts to limit crude oil and fuel imports due to the prolonged weakness in the domestic currency, signaling South Korea’s auto fuel exports to the region are unlikely to recover any time soon.

South Korea has regularly exported 500,000-830,000 barrels of gasoline a month to Indonesia over the past year, but none in July, KNOC data showed.

Shipments of gasoil to Indonesia more than halved to 588,000 barrels in July, compared with 1.2 million barrels a year earlier.

“This can hurt margins of local refiners because gasoline and gasoil are their biggest export items,” the KNOC official said.

With the steep depreciation of the Indonesian rupiah significantly hurting the country’s purchasing power in the international oil markets, state-run Pertamina looks set to cut procurement bills on refined oil products, with transportation fuels among the first few to see significant cuts, Platts previously reported.

The country imported 280,466 mt of gasoil in June, nearly 50% lower than 556,095 mt in May, detailed figures from Statistics Indonesia showed earlier this month.

The US dollar/rupiah exchange rate surged above Rupiah 14,700 this month, the pair’s highest level since September 29, 2015.
Source: Platts

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