These additional volumes were partly responsible for the strength of the Asian product tanker market towards the end of 2018, Gibson Shipbrokers said in a report.
For many the question is therefore -: what will Chinese refined product export volumes look like in 2019, and can they help sustain the regional product tanker market?
So far, the Government has issued 18.36 mill tonnes of quotas in the first round, versus 16.24 mill tonnes for the same period of 2018 (+13%), pointing to a stronger start to the year, at least in terms of volumes.
However, in the near term, January exports may be lower than seen in December, given that the end of 2018 saw many quota holders rush to use up any remaining allocations before their expiry date.
Furthermore, product carriers were well positioned to capitalise on these higher, given that a lull in newbuilding deliveries and a strong crude tanker market reduced competition for clean cargoes. This year will see there is a substantial orderbook delivered, whilst many of vessels which slipped back from the fourth quarter of last year are now emerging from the shipyards, and in some cases, being fixed to load clean products out of Asia.
With the crude market seemingly weaker, the appetite for crude carriers to lift clean cargoes on their maiden voyages is likely to persist, which could potentially limit the opportunities for product carriers in Asia, at least in the short term, Gibson said.
Overall, volumes are expected to see gains year on year. The Sinopec Economics & Development Research Institute recently suggested that China’s oil product exports would rise to 51 mill tonnes in 2019, up by 9% on its own figures and 3 mill tonnes higher than the total 2018 quota.
The key threat to this is that the crude import quotas issued thus far for 2019 are significantly lower year on year. Recently, Beijing authorised 89.84 mill tonnes of crude imports in its first round of quotas, down from the 121.32 mill tonnes in the first round last year (-26%).
More quotas will be issued later this year, perhaps earlier than usual, so this does not mean volumes will end up lower year on year, but it does signal downside pressure on import volumes for at least the first half of 2019, and potentially lower refined products production.
New refining capacity is due to fire up later in the year, such as Hengli Petrochemical and Zhejiang Petrochemical (both 400,000 barrels per day), meaning that feedstock volumes into China will see some upside, as will product export volumes.
Where the product ends up will also have implications for product carriers. With pending IMO 2020 regulations coming into play, and the wider implementation of ECAs across Asia, more distillate may be retained within the region, lending greater support to MRs better suited to intra-regional trade, unless of course, slower economic growth and higher refinery runs within the region forces more product to be 'pushed' outside, or stronger demand for distillate in the West ahead of IMO 2020, 'pulls' more product out of the region on larger tankers.
Bringing all these factors together, shipowners can allow themselves to be cautiously optimistic. Even though export volumes are likely to ease from the December high; bigger quotas and the start up of new refineries should support product tanker demand.
Newbuilding tankers will remain a persistent threat this year, and lower crude import quotas might limit product output. Yet, higher stocks, both for crude and clean may prove sufficient to cover any shortfall in the coming months, before volumes seasonally ease into the second and third quarters.
However, with 2020 now on the horizon, owners can be forgiven for banking on a strong end to 2019, Gibson concluded.