China's robust crude appetite may be a boon for exporters in 2019

Crude oil imports surged 15% YoY to a record 42.7 million tonnes in November.

The outlook for Chinese crude oil imports is forecasted to remain positive going into 2019 as new refineries and a new winter uptick in demand is expected to come on top of lower oil prices, according to a report by Fitch Solutions.

Crude deliveries from West Africa, mostly from Angola, lost some appeal in recent months due to higher shipping costs arising from Asia’s scramble for alternative cargoes amids uncertainties associated with Iran. However this is expected to ease in the coming months on the back of US waivers, Fitch Solutions noted.

“That said, we maintain our core view that a long-lasting resolution is unlikely given wide structural difference between the two countries that are necessary to reaching a long-term deal on trade,” Fitch Solutions said in its report.

China’s crude oil imports surged 15% YoY to a record 42.7 million tonnes or 10 million barrels per day (b/d) in November, and it was the first time imports had exceeded the 10 million b/d mark. This was due to stronger buying from non-state refiners which overlapped the start of test runs at several new refining units and boosted the month’s purchases, the report revealed.

“The latest refining units set to join China’s sprawling refining sector include PetroChina’s new 100,000 b/d crude processing unit at its Huabei Petrochemicals complex, Zhejiang Rongsheng’s 400,000 b/d facility in Zhoushan and Hengli Petrochemical’s 400,000 b/d refinery in Dalian,” Fitch Solutions said in its report.

According to the report, the higher norm for non-state refineries run rates indicate that the sector has adjusted to stricter tax rules and tighter financing conditions. Beijing introduced a set of ne rules for the non-state refining sector in March in a bid to boost government oversight over the collection of tax payments and close administrative loopholes frequently leveraged by independent refiners.

“The resulting squeeze to profit margins led many of China’s non-state refiners to undertake extended maintenance and curb operations over April to August,” Fitch Solutions explained. “During this period, average runs fell t0 61.9% compared with 67.8% for September to November and 65.2% averaged YTD.”

Import appetite amongst non-state refiners are expected to remain elevated in 2019 against new import quotas and government measures to prop up growth amidst rising external headwings, the report highlighted.

Meanwhile, state-owned enterprise (SOE) refinery runs were found to remain resilient despite softer domestic fuels demand thanks to still-positive export margins, particularly for diesel.

“New refining projects on the horizon indicate that the SOEs’ demand for crude feedstock will strengthen further over the coming quarters, particularly with domestic production showing no signs of rebounding to sufficient levels in the foreseeable future despite government calls for greater energy supply security.” Fitch Solutions noted.