China's record gasoline exports signal worsening domestic glut

* June gasoline exports more than double on year
* Platts Analytics expects July exports to hit 1.3 mil mt
* Blended gasoline adding to oversupply

China's gasoline exports more than doubled on the year in June to surpass 1 million mt for the first time ever, highlighting growing oversupply due to faltering domestic demand, a trend that is likely to continue in coming months.

Chinese gasoline exports in June also rose 46% from May to 1.1 million mt, or 312,000 b/d, the latest data from the General Administration of Customs showed.

Platts China Oil Analytics estimates exports are likely to hit 1.3 million mt in July.

With the refining sector producing 11 million mt of gasoline in June, it meant that 10% of domestic output was exported, the highest proportion since April 2010, according to S&P Global Platts calculations based on data from the National Bureau of Statistics.

Gasoline output has been rising steadily as Chinese producers have altered their production slate, moving away from gasoil, demand growth and output of which have fallen on sluggish economic growth.

Refiners lifted gasoline yields to 28.3% in June, from 26.9% a year earlier, with a year-on-year output growth of 8.9%, Platts calculations show.

ADDITIONAL SUPPLIES

Market participants said domestic gasoline supply was more than just the output from refiners if blended gasoline is also taken into account.

Imports of mixed aromatics, a gasoline blending feedstock, remained unusually high at 1.17 million mt in June, more than double year on year, but down from 1.21 million mt in May, customs data showed.

Almost all of China's mixed aromatics imports go into the gasoline blending pool.

This took the market by surprise as it had initially expected mixed aromatics imports would ease to below 1 million mt in June because of high stocks.

Mixed aromatics inflows in June -- once fully blended into the gasoline pool -- would add around 3.9 million mt of blended gasoline to the production flow from refineries.

This indicates that actual supply might be 35% higher than the volume reflected in the NBS data.

"It's hard to tell how much mixed aromatics has been blended in June, but there is no other way besides going into the gasoline pool as storages are currently full," a Guangzhou-based trader said. Guangzhou is a major destination for imported mixed aromatics.

A wholesaler from PetroChina's Guangdong sales arm added: "Supplies are plentiful, but demand growth is not catching up with it."

In addition, heavy rain that started in late June in the central, southwest and southern regions have hit demand for gasoline, leaving more available for export, traders added.

OVERSEAS PRICES ATTRACTIVE

Market sources say they expect the rise in gasoline exports since February to continue over the next few months because of lower margins on local markets and plentiful domestic supplies.

"Refiners prefer to sell their barrels on overseas markets even though the FOB Singapore 92 RON gasoline crack has narrowed to an extremely low level," a Beijing-based products trader said. "It is because the margin is much lower on the domestic market than for exports."

The benchmark FOB Singapore 92 RON gasoline price's premium to front-month ICE Brent futures on July 8 fell to $1.66/b, its lowest in over 32 months.

The crack was last lower on October 30, 2013, when it stood at $1.45/b. It was at $2.98/b on Wednesday, with the gasoline price assessed at $47.56/b.

However, the wholesale price before tax of 92 RON gasoline was around $35/b in China's Guangdong province, given that the price, including consumption tax and value-added tax, was around Yuan 4,800/mt on Tuesday.

A spread of over $11/b was wide enough to cover freight and fees for exports, sources said.

"The spread encouraged state-owned refiners, especially those lacking retail outlets like Sinochem and CNOOC, to find buyers overseas," the Beijing-based trader said.

CNOOC's Huizhou refinery has a plan to raise its July oil product exports by 14% to 240,000 mt, from 210,000 mt in June, a Platts survey showed. Meanwhile, Sinochem's Quanzhou refinery also has plans to raise its gasoline exports to around 160,000 mt this month from 130,000 mt in June.

SHIPMENTS TO THE US

Over the first half of 2016, China exported 4.45 million mt of gasoline to all destinations, a year-on-year surge of 74.7%. In June, it shipped 29,690 mt to the US.

In addition, international trading house Trafigura sent a 35,000 mt cargo, comprising of 92 RON, 10 ppm sulfur gasoline, to the US in April from Shandong in China. It was sold by Shandong-based Hongrun Petrochemical.

The initial destination was scheduled as Singapore during cargo departure but was later changed to the US. As a result, it's not reflected in the customs data.

Over January-June, Singapore remained the top destination on 52.7% of China's gasoline exports.

Singapore is the biggest trading hub and blending center in Asia. Most of the cargoes sent there are blended and re-exported.

--Oceana Zhou, oceana.zhou@spglobal.com
--Sambit Mohanty, sambit.mohanty@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com

http://www.platts.com/latest-news/oil/singapore/analysis-chinas-record-gasoline-exports-signal-27637826