In a recent report, Gibson Shipbrokers mentioned that product tankers trading in the Far East are having a better second half of 2017, in comparison to the first half, and on average, have outperformed the Atlantic markets.
Earnings in West were lower than those of the Far East which were consistent. This is due to seasonal trends the report says, adding that the market was boosted by the hurricane Harvey, as the demand increased, in order to fill shorts on the West Coast of North and South America.
“Whilst this demand has now faded, the product markets may still be feeling a longer lasting impact in terms of thinner tonnage lists from displaced vessels, stronger refining margins and higher trading demand, particularly from North Asia,” Gibson Shipbrokers said.
Earlier in November, the Chinese government issued an additional 5 million tonnes of product export quota to the state-owned refiners to use by year end. This, along with with good margins, gave incentives to refineries across China to boost runs and push more product into the export market.
Furthermore, although the independent refineries have not been granted the same export rights, they have the ability to fill the gap left behind by the state-owned refiners who have less restrictive access to the external markets.
Moreover, the report notes that China’s ban of >10ppm diesel in ships and tractors has also made some operators to clear storage and boost exports of the higher sulphur grade. Elsewhere in the region, increased demand for naphtha from the petrochemical sector is driving trading of the light distillate across the region.
As we enter in 2018, Chinese product export quotas may need to be raised further. The Chinese government has raised crude import quotas for independent refiners by 55% to 2.85 million b/d. This increase in import quota will supply domestic market will further increase refined product exports.
All of this points to higher export demand emanating from North Asia for the balance of the year.
However, higher regional refinery runs from recently commissioned and existing plants will continue to support products trade across the region, even if the growth is slower than in recent years, the report concludes.
Recently, South Korean refiners decided to spend $5 billion on plant upgrades in order to comply with the stricter rules about shipping fuel, thus enhancing the production of low-sulphur fuel and high-end products.
For more details about the report, please click the PDF below
