Japanese May gasoline demand at 37-year-low, slow demand recovery in sight

MOSCOW (MRC) -- Japan's estimated gasoline demand in May fell to the lowest monthly level in 37 years as consumers refrained from traveling at the beginning of the month, a period when driving activity typically peaks due to public holidays, reported S&P Global.

Local refiners and traders remained cautious on the gasoline demand recovery prospect in June as people may not actively go out amid concerns over the coronavirus infection despite the recent lifting of the state of emergency.
"We expect the coronavirus pandemic to have an impact [on the gasoline demand] for around a year and the demand is likely to continue making large drops from a year ago," a trader said Thursday. "With the summer demand season approaching, we expect to see a gradual demand recovery."

Japan on May 25 lifted the remaining state of emergency measures for Tokyo, Chiba, Saitama, Kanagawa in the east and Hokkaido in the north, ahead of their May 31 expiry after the state of emergency was first declared April 7.

"The lifting of the last five prefectures from the state of emergency early this week should provide some support to gasoil demand as they account for about a third of the country's GDP," S&P Global Platts Analytics said in a note on Wednesday. "Still, our current base case assumes a contraction in 2020 GDP by 4.5% and gasoil demand is likely to stay weak."

While Japanese refiners are keeping their gasoline output relatively short over the ailing domestic demand, at least one refiner said it does not rule out the possibility of importing the motor fuel should the recovery exceed its expectations.

"Following the lifting of the state of emergency, we expect the (gasoline) demand to recover gradually from June," a source with the Japanese refiner said Thursday. "We do not expect to see a need for imports from a V-shape recovery but we do not rule out an option for the product import if the demand recovery exceeds our expectation."

Japan's gasoline demand in May is estimated at 2.92 million kl, or 592,459 b/d, down 27% year on year, with gasoil demand estimated down 11% year on year to 2.4 million kl, or 486,952 b/d, JXTG Nippon Oil & Energy, the country's largest refiner, said Thursday.

That would put gasoline demand at the lowest for the month since 1983, when domestic gasoline sales stood at 2.88 million kl, and gasoil demand at the lowest for the month since 2010, when sales stood at 2.37 million kl, according to the Ministry of Economy, Trade and Industry data.

JXTG attributed the drop in gasoline demand to the state of emergency measures that had requested the public to refrain from going out during the Golden Week national holidays over late April to early May. The gasoil demand also slid as the restraint measures reduced the fuel demand for public buses and construction activity.

Specifically over the Golden Week national holidays, Japanese gasoline demand plunged 34% year on year while gasoil demand increased slightly from a year earlier because of greater demand for home delivery despite less demand for holiday travel, according to Tsutomu Sugimori, president of JXTG Holdings, the parent of the refining unit.

A potential increase in Japanese appetite for imports is considered supportive to the Asian gasoline complex, with buyers potentially looking to purchase barrels in the wider region to fill their requirements, market sources said.

South Korean refiners – which are the nearest source of cargoes for Japan -- are slated to go into a period of heavy maintenance in June.

"Hopefully the increased demand will spill over to here (Singapore), and help us absorb some supply," a Singapore-based source said. Of late, the Asian gasoline complex has seen a fresh wave of bearishness as participants questioned the extent of the regional demand recovery.

The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures was even assessed at minus $1.89/b at the 0830 GMT Asian close Wednesday, despite momentarily recovering to positive territory on March 19 and March 20, according to Platts data.

The Asian gasoil market has rebounded from record lows, with the strength primarily stemming from tighter supply balances in the region. As such, traders said the region is able to tackle excess supplies by slowly digesting volumes thanks to the bursts of demand that have emerged following the rollback of some coronavirus-related containment measures in Asian countries.

At the Asian close Wednesday, the cash differential for FOB Singapore 10 ppm sulfur gasoil cargoes was assessed up 31 cents/b at a two-month high of minus 29 cents/b to the Mean of Platts Singapore gasoil assessments.

As MRC wrote before, JXTG Nippon Oil and Energy is in plans to restart its cracker following an unplanned outage. The company is likely to resume operations at the cracker this week. The cracker was shut owing to technical issues on May 4, 2020. Located at Kawasaki in Japan, the cracker has an ethylene production capacity of 460,000 mt/year and propylene production capacity of 235,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC

MOSCOW (MRC) -- Crude futures fell Wednesday as the focus turned to a lack of consensus among OPEC+ members ahead of the group's next meeting on June 8-10, reported S&P Global.

NYMEX July crude settled at USD32.81/b, down USD1.54, while ICE July Brent settled at USD34.74/b, down USD1.43.

"Oil's rally stalled out after Russia signaled they want to unwind productions in July, a sign that the battle for market share will resume as crude demand improves," said OANDA analyst Edward Moya. "Russia's comments on easing cuts in July served as a reminder that higher prices and improved crude demand will likely see OPEC+ compliance go out the window."

While news that Russia's oil ministry said global oil markets would balance in June or July pulled prices lower, subsequent news Wednesday that Russia's President Vladimir Putin agreed with Saudi Arabian Crown Prince Mohammed bin Salman on the need for "close coordination" put a floor in futures.

"Both sides noted the importance of joint efforts in achieving OPEC+ agreements in April to limit oil production," said a statement from the Kremlin. "They agreed that further close coordination on this issue should take place between energy ministers."

The OPEC+ alliance agreed in April to reduce output by 9.7 million b/d in May and June in response to plummeting demand caused by the coronavirus pandemic. Saudi Arabia has since said it will cut a further 1 million b/d in June.

Crude futures remained in contango, but the curve has flattened, reflecting a tighter supply/demand balance. The market appears less concerned that inventories will reach storage capacity, notably at the Cushing, Oklahoma delivery point for NYMEX futures.

Producers in the US and Canada have announced output cuts totaling roughly 2.7 million b/d. The coronavirus has also hit oil production in Latin America.

The market is hardly bullish. But the cuts may present a risk to supply down the road, according to the International Energy Agency.

Global energy investment is expected to plunge by 20%, or almost USD400 billion, in 2020, the agency said Wednesday.

The US shale sector is set to be hit hardest, with investment in shale forecast to fall by 50% in 2020 as investor confidence and access to capital has now "dried up," the IEA said.

In refined products, NYMEX June RBOB settled at 99.33 cents/gal Wednesday, down 5.56 cents, while June ULSD settled 1.87 cents lower at 97.21 cents/gal.

Refined products demand is expected to increase in the near term as more countries ease lockdown restrictions.

In the US, restrictions on non-essential travel have been eased or lifted in all 50 states, though major metro areas, including Los Angeles and New York City, remain on lockdown.

Likewise, some Asian countries are starting to ease restrictions, boosting gasoline demand.

According to S&P Global Platts Analytics, Apple Mobility Index data suggests "a recovery in driving activity is now underway among Asian countries outside China, with Malaysia, Thailand and Vietnam improving the most."

RBOB crack spreads have weakened over the past two trading days, however, likely reflecting some demand optimism fading from the market.

The NYMEX July RBOB crack spread against ICE Brent ended Wednesday at around USD8.07/b, down from USD9.07b Friday.

While US refinery runs are expected to have risen, but unemployment remains high, and export demand sluggish, which is putting a cap on RBOB cracks.

Kpler vessel tracking software shows roughly 19.4 million barrels of clean products being exported from the US to Latin America so far in May, down from a total of 33.5 million barrels in April, and 67.2 million barrels in March.

As MRC informed previously, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC

MOSCOW (MRC) -- Volgograd Kaustik, Russia's fourth largest polyvinyl chloride (PVC) producer, resumed its polyvinyl chloride (PVC) production capacities after a scheduled turnaround, according to ICIS-MRC Price report.

Representative of Kaustuk Volgograd said PVC production had been resumed by 27 May. The shutdown will be quite long and lasted until 1 May. The plant's PVC production capacity is 90,000 tonnes/year.

It is also worth noting that next shutdowns for maintenance at Russian PVC plants are scheduled in June - July.
SayanskKhimPlast and RusVinyl, which annual capacities are 350,000 tonnes and 330,000 tonnes, respectively, will take next off-stream their production capacities for maintenance. SayanskKhimPlast wiil stop from 2 July for one month.

PVC production at Volgograd Kaustik was launched in December 1972 with the assistance of the Japanese firm Kureh's specialists. Nikokhim Group is one of the leaders of the Russian chemical industry, the main production assets of which are located in the southern industrial hub of Volgograd.

The holding company includes: JSC Kaustik is the principal plant of the group, manufactures basic products - caustic soda, chloroparaffins, synthetic hydrochloric acid, chlorine trademark, polyvinyl chloride, sodium hypochlorite, etc .; CJSC NikoMag - production of anti-icing materials, magnesium chloride, magnesium oxide and hydroxide; Zirax, Ltd. - production of high-purity reagents for various industries and JSC Poligran - the production of plastic compounds and rigid PVC compounds.
MRC

MOSCOW (MRC) -- Russia's overall polyethylene (PE) production totalled 994,000 tonnes in the first four months of 2020, up by 62% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output, according to MRC's ScanPlast report.

April PE production in Russia rose to 259,400 tonnes, whereas this figure was 260,500 tonnes a month earlier, output of high density polyethylene (HDPE), while the output of other types of polyethylene decreased. Thus, overall PE production reached 994,000 tonnes in January-April 2020, compared to 613,300 tonnes a year earlier. Production of all PE grades rose, but LLDPE accounted for the greatest increase, which was provided by ZapSibNeftekhim.

The structure of PE output by grades looked the following way over the stated period.
April total HDPE production grew to 151,300 tonnes from 142,300 tonnes a month earlier. Russian plants' overall HDPE output reached 571,900 tonnes in January-April 2020, up by 79% year on year.

Last month's total low density polyethylene (LDPE) production decreased to 58,800 tonnes from 61,000 tonnes in April, Kazanorgsintez and Tomskneftekhim decreased their output. Thus, overall production of this PE grade totalled 231,900 tonnes over the stated period, up by 6% year on year.

April LLDPE production rose to 49,300 tonnes from 57,200 tonnes a month earlier, ZapSibNeftekhim and Kazanorgsintez decreased its capacity utilisation. Overall LLDPE output rose to 190,100 tonnes in the first four months of 2020 from 75,900 tonnes a year earlier.

MRC

1. Japanese refiners facing stagnant market may cut capacity

MOSCOW (MRC) -- Japanese refineries may be forced to shut down capacity once again unless they see a strong recovery from the coronavirus pandemic, reported Reuters. They’ve been hit by declining use for fuel at home, competition from newer refineries in China and South Korea dominating in other markets, as well. Idemitsu Kosan on Tuesday reported an annual loss, like its competitors have done in recent days.




MRC