Beijing September 22, 2021: China maintained high yields for six oil products, remaining above 71% in August, despite crude throughput falling to 15-month low, data from the National Bureau of Statistics showed on Sept. 20.
The yield for LPG, naphtha, gasoline, jet fuel/kerosene, gasoil and fuel oil was at 71.1% in August, compared with 67% a year ago and 71.5% in July.
Crude throughput, on the other hand, fell 2.2% year on year and 1.2% from July to 58.35 million mt, NBS data showed.
The high oil product yield was a result of three factors, intensive competition in chemical market, independent refineries' effort to report production properly and to make up the reduction in oil product supplies from blending pool, refining sources said.
Officials from both Sinopec and PetroChina said chemical production capacity has expanded significantly this year, which generates more supplies in domestic market and narrows profits from petrochemical products.
In addition, tight investigation in taxation forces independent refineries to report their production more properly, analysts said. To evade heavy consumption taxes on oil product, these refineries used to report some of their gasoline, gasoil production as petrochemical products.
Make up supplies
Meanwhile, the new consumption taxes led imports of light cycle oil (LCO) and mixed aromatics slumped in August with inventory declines, thus gasoline and gasoil supplies from blending pool fell.
LCO imports remained at a low level of 128,175 mt in August though rising 15.5% from July, data from the General Administration of Customs showed on Sept. 20. For comparision, LCO imports hit a record high of 2.08 million mt in April, followed with the fall to 1.59 million mt in May and 1.36 million mt in June.
Mixed aromatics imports dropped to 114,531 mt in August, from 239,510 mt in July and 699,339 mt in June, GAC data showed.
Moreover, the recent strict environmental investigation conducted by the government also significantly dampens off-spec barrels supplies from blending pools, blenders told S&P Global Platts.
Therefore, China's gasoline yield in August was 23% comparing to 19.9% in a year ago, while gasoil yield fell to 22.5% from 23.8% in a year ago.
Gasoil, fuel oil, jet
However, refining sources said it did not mean an actual cut in gasoil output.
"A few of gasoil product are reported as fuel oil under the category of Light Bunkering Fuel Oil in order to save consumption tax," a source with a state-owned refinery said.
Gasoil attracts Yuan 1,411/mt ($218.22/mt) of consumption tax, higher than fuel oil's Yuan 1,218/mt.
NBS showed that China's fuel oil output jumped 37.8% year on year to 4.11 million mt, which also grew 8.9% from July.
At the same time, fuel oil imports under customs warehouse regime jumped 65% month on month to 1.21 million mt, GAC data showed.
Most barrels of the domestic production and warehouse imports are for bunkering, according to market source. But China's bunkering demand in August was capped by tyhoons and COVID-19 waves in Ningbo.
"These factors suggest that the surge in fuel oil output was unreasonable, and some of the barrels are likely to be MGO," a Beijing-based analyst said.
The surge of fuel oil compensated hefty reduction in jet/kerosene output, which slumped to 16-month low of 2.8 million mt in August. The previous low was 2.43 million mt in April when COVID-19 outbreak significantly dampened aviation industry.
The reduction was within expectation as domestic air traveling would continue to remain under pressure due to Chinese government's zero-tolerance controls against COVID-19 to stabilize domestic living and as an preparation for the coming Winter Olympics in February.
Moreover, only the jet fuel barrels that for aircraft fueling are consumption tax-free since July 1, dampening kerosene demand for other usage, such as blending. This has caused oversupply for the fuel.
