China state companies reach for new markets as 2017 diesel exports surge

SINGAPORE (Reuters) — Chinese state companies are shipping diesel to new buyers in the Middle East and Latin America as exports of the fuel head towards a record, and independent refiners could help raise the outbound sales even higher next year, multiple sources said.

At least one of the independent refiners is looking to invest in fuel storage in southern Malaysia and others are setting up offices in Singapore, anticipating that Beijing is going to ease its export policy for the independent companies, said the sources involved in the shipment of diesel from China.

The world's second-largest oil consumer exported 13.2 MMt of diesel over January to October, up nearly 9% from a year ago, according to customs data. Monthly exports hit a record high in March, and exports for 2017 are on course for the most ever for a year.

If Beijing lifts its ban on China's independent refiners exporting refined fuel, diesel exports could hit another record next year, the sources said.

"(China's Ministry of Commerce) may award more product export quotas for 2018 and include independents, (though) volumes are unlikely to be massively higher than the 44 MMt issued this year," said Nevyn Nah, a Singapore-based analyst at Energy Aspects.


China's diesel surplus comes amid an expansion of its refinery capacity and a slowdown in domestic demand. Chinese refineries have also upgraded to meet new fuel standards, and that means the nation's exports can increasingly be sold into Europe and Australia, traders said.

For instance, Unipec, the trading arm of Asia's largest oil refiner Sinopec, started diesel exports to Europe this year and is shipping what is likely the first Chinese-origin cargo to New York harbor.

Unipec has also started shipping diesel to Latin America, exporting a few medium-range sized cargoes in the second half of the year, said a source familiar with the matter.

China's state-owned Zhenhua, a unit of defense conglomerate China North Industries Group Corp (NORINCO), has for the first time won a tender to supply about 25% of the nearly 2.4 MMt of diesel required by Iraq in 2018.

"The Chinese are likely to increase their market share in both North and South America as they take advantage of arbitrage opportunities," Energy Aspects' Nah said.

Several teapots have set up offices in Singapore and are growing their presence in the oil-trading hub.

At least one of them is looking to invest in oil product storage in southern Malaysia, a source close to the matter said, adding that details are still being worked out.

"We expect the Chinese government to allow exports next year or by 2019, so we want to be ready when that happens," the source said.

Reporting by Jessica Jaganathan; Editing by Tom Hogue

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