Chinese gasoline prices tumbling

Gasoline prices have fallen to unusual discounts to diesel, on the Chinese domestic market.

Diesel is taxed less heavily than gasoline on the Chinese spot market which trades inclusive of tax and, only rarely, prices above gasoline. But in Shandong, Huaxing Petrochemical — a subsidiary of state-owned ChemChina — is offering China 6 standard diesel at Yn6,300/t and 92 Ron gasoline at Yn6,250/t. That is equivalent, before tax, to $89.02/bl and $64.56/bl, respectively. Shandong independent refiners Hengyuan and Luqing are offering diesel at Yn50/t and Yn60/t above their offer prices for gasoline.

The opening of private sector Hengli's new 400,000 b/d Dalian Changxing refinery last month may have added a 110,000 b/d to gasoline supply while boosting diesel supply by just 40,000 b/d. Hengli plans to produce 70,000–106,500 b/d of finished gasoline in June and is applying for storage and sales licences. It received approval to lease 4.9mn bl (780,000m³) of clean product storage capacity, likely to be near the refinery in Dalian, on 6 June.

The launch of these new giant refineries is encouraging smaller independents to front-load product sales, in the expectation that prices will fall further as private sector firm Rongsheng ramps its new 400,000 b/d ZPC refinery up to full capacity later this year. Product stocks held by state-controlled refiners such as PetroChina and Sinopec are high. They are discounting fuel prices to hit internal sales targets, adding to the downward pressure on prices. Some sales of gasoline outside the tax system persist, and this adds to the downward pressure on prices.

Shandong spot gasoline and diesel prices fell by $4.57/bl and $3.12/bl — to $65.53/bl and $88.25/bl, respectively on a pre-tax basis — between 29 May and 4 June, Argus assessments indicate. Shandong gasoline prices are trading at widening discounts to prices in south China, which should draw gasoline surpluses to the south of the country. Shandong gasoline has to price below fuel from state-controlled refiners in order to clear the market. But firms such as Sinopec, with large gasoline export quotas, can offload their output overseas. Spot prices for 92 Ron gasoline in China's Pearl and Yangtze river delta markets averaged $2.68/bl below Singapore prices in May. And gasoline exports rose in May from April levels, data from vessel tracking firm Vortexa show.

Chinese refiners have been lowering their diesel yields and increasing gasoline yields. This has added to gasoline supply, while demand growth is running far below forecasts from just three years ago. Apparent gasoline demand — refinery production plus imports of mixed aromatics minus net exports of finished gasoline — rose by just 1pc year-on-year in January-April, to 3mn b/d.

Partly this reflects the maturing of China's car market. Passenger vehicles sales of 23.7mn units last year were 4.08pc lower than 2017 sales, data from the China Association of Automobile Manufacturers show. It also reflects the growth in new energy vehicles, where ownership has grown by 69pc over the same period, to 2.61mn units. Vehicle efficiency is also improving. The fuel consumption of new cars in China will fall to 5L/100km to 2020 under the country's Made in China targets — from around 6L/100km now — and 4L/100km in 2025, the Ministry of Industry and Information says.

And northern Hebei province, this month, introduced an ethanol mandate for five cities — Chengde, Zhangjiakou, Tangshan, Qinhuangdao and Langfang — and will implement it province-wide at the end of the year. This will require the replacement of 10pc of Hebei's gasoline with ethanol. Hebei will disadvantage Shandong independent refiners which sell output to Hebei presently but will not be awarded ethanol blending licences. Tianjin municipality, in the northeast, introduced an ethanol mandate last year.