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China’s imports of blending fuels to ease after Jan-July surge

China’s imports of fuel blending components are set to slow over the rest of 2020 having more than doubled in the first seven months as rising fuel stockpiles snuff out importer profits, industry sources said.

Shipments of light cycle oil (LCO) and mixed aromatics have added to China’s gasoline and diesel stocks, which have swelled recently due to record volumes of crude oil processing.

The rising fuel stockpiles have dampened China’s appetite for oil and petrochemical imports from South Korea and elsewhere, and could force state refiners to boost fuel exports in the coming months which may further depress Asian refining margins already at multi-year lows.

Between January and July, China imported 7.85 million tonnes of LCO versus 3.65 million tonnes a year earlier.

Its imports of mixed aromatics neared 3.9 million tonnes versus 1.85 million tonnes a year earlier, customs data showed.

Chinese blenders often add LCO, a residue product from fuel oil upgrading, into diesel, and mixed aromatics into gasoline to raise octane levels whenever prices are cheap enough.

These blending components, unlike gasoline and diesel, are not subject to consumption tax.

LCO imports outpaced those of mixed aromatics as China’s diesel demand recovered faster than gasoline following the pandemic lockdown thanks to government stimulus, traders said.

However, with storage tanks brimming in key import zones in southern and eastern China, imports are set to ebb, knocking down prices of supplies from key LCO exporter South Korea.

Spot premiums for South Korean LCO have collapsed to near parity over Singapore benchmark diesel quotes on a free-on-board basis, from peaks of $10-$20 a barrel around April, said two traders.

“China has high domestic inventories and it’s getting very difficult for them to find outlets,” said Zameer Yusof, an analyst at Refinitiv, who estimated Korean LCO exports to China would ease to 800,000 tonnes for September loadings from a peak in August of 1.14 million tonnes.

Mixed aromatics, from suppliers including Singapore, Malaysia and the Netherlands, are also set to ease after prices of the petrochemical firmed alongside Asian gasoline prices to close the arbitrage window, traders said.
Source: Reuters (By Chen Aizhu)

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