Home / Commodities / Freight News / China to become key gasoline supplier to Japan as term contract starts

China to become key gasoline supplier to Japan as term contract starts

China will emerge as a new term gasoline supplier to Japan in April when a Japanese refiner starts lifting Chinese barrels under a six-month supply deal — which may pressure imports from South Korea, Japan’s top oil product supplier.

Cosmo Oil, which recently inked the six month gasoline supply deal with a Chinese state-owned oil company, will lift two MR-sized cargoes from China in April, marking the first import from its East Asian neighbor this year, a company source told S&P Global Platts.

Cosmo Oil, which imports gasoline from China sporadically, moved ahead to seek the term supply from the Chinese oil company because of its competitive availability to supply from South Korea, the source said.

The Chinese term gasoline supply will help Cosmo Oil diversify its supply sources; it previously sourced almost all its imports from South Korea, including all of its imports over January-March, the source added.

Cosmo Oil also has a term contract to import one MR-sized gasoline cargo/month in 2020 from a South Korean refiner, which would take the Japanese refiner’s gasoline imports in April to three MR cargoes with the Chinese supply.

The refiner’s import total for April is up from two MR-sized cargoes loading from South Korea in March, according to the source.

Cosmo Oil’s move came to light at a time when the refiner is facing tighter spot supply from South Korea, Japan’s top supply source for refined products, as a result of refinery run cuts and maintenance programs.

Japanese buyers typically seek cargoes from South Korea due to the lower cost of freight and comparable specifications between South Korean and Japanese gasoline.

However, cargo availability could dip following run cuts at South Korean refiners, market sources said.

South Korea’s largest refiner SK Energy has cut the combined operating rate of its five crude distillation units at its 840,000 b/d Ulsan plant to 85% until the end of March due to tepid domestic demand.

“It is not impossible to find specifications for Japanese domestic consumption from China,” one market source noted, adding: “Aside from South Korea, north China ports will be your best bet for cargoes to Japan given the distance.”

The movement of cargoes toward Japan from China is expected to be supportive to the Asian gasoline complex, helping to alleviate growing oversupply that has resulted from high export volumes from China in March as state-owned refiners raised exports amid tepid domestic demand.

Regional demand has not been able to keep up with the increase, with coronavirus containment measures across the region limiting driving activity.

Reflecting the bearishness, the Asian gasoline complex was assessed in deep contango at the close of Asian trade Tuesday, with the April/May and May/June swap spreads assessed at minus 75 cents/b and minus 90 cents/b, respectively, S&P Global Platts data showed.

Cosmo Oil’s procurement of gasoline comes as it is scheduled to shut the 102,000 b/d No. 2 CDU at its 177,000 b/d Chiba refinery in Tokyo Bay in April.

The company has become a regular importer of gasoline as part of its supply commitment to domestic retail and wholesale supplier Kygnus Sekiyu, under which it will supply 3 million kiloliters, or 18.9 million barrels of gasoline, kerosene and gasoil from 2020.

The company’s annual oil products supply commitment to Kygnus, in which Cosmo Energy Holdings holds a 20% stake, would equate roughly to 14% of its installed refining capacity of a combined 363,000 b/d over three refineries in Japan. But Japan’s import parity for gasoline imports from South Korea remains supportive.

The spread between Japan’s domestic gasoline rack prices in Chiba and Japan’s import parity for gasoline from South Korea has averaged Yen 11,800/kl ($17.71/b) to date in March, up Yen 5,600/kl, or 90.3% from the average in February.

The import parity price is calculated as a premium to MOPS 92 RON gasoline assessments, plus freight costs for MR vessel on the South Korea-Tokyo Bay route, as well as insurance and import taxes.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping