MOSCOW (MRC) -- With low sulfur fuel oil crack spreads in Asia under pressure from oversupply and lackluster demand, refineries in Thailand, Taiwan and South Korea are reducing their July LSFO production and exports, company sources at regional refineries said July 6, said S&P Global.
"For July, we've balanced our supply to just meet our domestic LSFO bunker term commitments, as the LSFO margins right now are weak, so we'll probably skip [LSFO] exports this month," a refining source close to Taiwan's CPC Corporation said. "We're likely to have a cargo to export in early August instead," she added.
The Asian LSFO crack spread, measured as the difference between the front-month Singapore Marine Fuel 0.5%S swap and the Dubai crude oil swap, was assessed at USD7.83/b on July 3, marginally higher than the Q2 average of USD7.47/b. The July 3 spread is, however, a quarter of the USD29.77/b spread on Jan. 2, after the International Maritime Organization's regulations on cleaner marine fuel came into effect on Jan. 1, S&P Global Platts data showed. The crack spread averaged USD6.76/b over June.
In response, refineries in South Korea, Taiwan and Thailand -- which have exported LSFO cargoes to Singapore in H1 2020 --have started reducing their LSFO production towards the end of the second quarter, in some cases by as much as 50%, and have cut exports to focus on domestic bunker demand.
"Our maximum LSFO production capacity is around 300,000 mt/month, but we're producing less than 200,000 mt/month, about 40% less," a source close to South Korean refiner Hyundai Oilbank said. "Low sulfur bunker demand [in South Korea] has been fairly stable at approximately 600,000-650,000 mt/month, but we're also facing increased competition from ports like Shanghai, so the bunker premiums [in South Korea] have not increased much," said a source at South Korean refiner SK Energy, which is producing at 50% of its LSFO production capacity of 400,000 mt/month.
SK Energy has sold 40,000 mt of LSFO for July loading from its Incheon refinery, unchanged from June, another company source said. The average difference between delivered low sulfur bunker prices at South Korea and Shanghai stood at USD6.17/mt over Q2, versus the Q1 average of minus USD18.90/mt, when South Korean prices were lower, Platts data showed.
The situation is no different in Taiwan and Thailand, where most refiners have yet to offer any July-loading LSFO spot cargoes for export due to low margins, preferring instead to focus on domestic demand, or in the case of Taiwan's Formosa, adjust to temporarily producing higher sulfur cargoes while run rates at its three crude distillation units are reduced, company sources said.
Formosa has not sold any LSFO for loading in July, although the last two cargoes it sold, each 40,000 mt and loading over H1 June and mid-July contained 0.9% sulfur, higher than the maximum 0.5% sulfur specification they typically produce, according to traders who participate in the company's tenders.
PTT Global Chemical, the biggest LSFO exporter in Thailand, sold 60,000 mt of IMO-compliant fuel oil for July loading, down from 70,000 mt for June loading. The company normally supplies LSFO for the domestic market, while the balance is exported. "Domestic bunker demand is recovering," a PTTGC source said.
As MRC informed earlier, Formosa Petrochemical Corp (FPCC) restarted No2 cracker in Mailiao, Taiwan on 4 June after brief outage. The craker No2 of capacity 1.035m ethylene, 520,000 propylene tonnes/year was shut on 1 June 2020 on technical issues. The company is currently operating its No 2 cracker at around 90% of capacity after resuming operation on 5 June, according to a market source.
Ethylene and propylene are feedstocks for producing PE and PP.
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.