China Halts Petroleum Product Exports, Raising Hopes for Improved Margins at South Korean Refiners

[Financial News] Attention is focused on whether the export profitability of South Korean refiners will improve as Chinese refiners halt petroleum product exports. A reduction in the international supply of petroleum products could drive up selling prices and boost refining margins.
According to foreign media reports and other sources on the 2nd, Chinese refiners halted petroleum product exports this month to destinations other than Hong Kong and Macau in order to build up domestic inventories. State-owned oil company PetroChina canceled some scheduled shipments of gasoline and jet fuel for this month, while private company Zhejiang Petroleum and Chemical (ZPC) did not schedule any petroleum product shipments during the national holiday period. It remains uncertain whether exports will resume after the holiday ends on the 7th.
The immediate benefit expected for South Korean refiners is higher export prices. Overseas buyers that had sourced petroleum products from China may seek alternative supplies, potentially increasing demand for South Korean products. If the export suspension continues and product prices rise more than crude oil procurement costs due to supply shortages, refining margins could widen. This would create room to improve profitability even if export volumes do not increase.
However, many industry analysts say the scale of the indirect benefits will be limited. South Korea is also implementing export restrictions, making it difficult to freely increase exports of gasoline and diesel. In March, the government introduced a maximum-price system for petroleum products to stabilize domestic supply and demand, limiting the monthly export volumes of regular gasoline, automotive diesel and indoor kerosene to no more than 100% of the levels recorded in the same month last year. Even if overseas sales conditions improve, there will be limits to expanding exports of these products beyond last year's levels.
Jet fuel, which is not subject to the export restrictions, is a product worth watching for its potential to replace lost supplies. After China most recently restricted petroleum product exports in March this year, South Korea's jet fuel exports reached 1.14 million tonnes in May, the highest level in nine months since August last year. Overseas buyers also appear to have sought South Korean jet fuel in response to the decline in Chinese supplies.
There will be some positive impact because if reduced Chinese supply pushes up petroleum product prices, refiners can sell the same volume at higher prices,
[email protected] Jung Won-il Reporter