MNI INTERVIEW: China Oil Imports To Recover Slowly From May

Shipping lag effects will amplify disruptions to China’s supply in April, pushing imports below March’s level, a Chinese oil industry advisor told MNI, adding that inbound shipments will stabilise and gradually recover in May and June but are likely to remain below the combined January-February total of 96.93 million tonnes.

Some recovery will come from the temporary ceasefire window in the Gulf, the reopening of paid transit routes and the allocation of additional crude import quotas to independent "tea-pot" refineries in early April, which will boost purchasing flexibility and partially offset supply disruptions, said Liao Na, vice president at Mysteel OilChem.

Simultaneously, imports from non-Middle East suppliers—including Russia, the Americas and Africa—will continue to rise, but logistical constraints and limited incremental capacity will prevent these sources from fully offsetting reduced Middle East supply, said Na. 

Shipments rose 8.9% y/y in the first quarter, with March’s totalling 49.98 million tonnes.

The rebound from May will remain further constrained as the Strait will not fully reopen in the near term, Na said. Additionally, after China’s NDRC relaxed rules on commercial reserves, some state-owned firms have begun reselling West African crude to capture high-price arbitrage opportunities, further weighing on import volumes, she added. 

After attacks on Russian oil and gas ports on March 22, weekly crude shipments from Russia to China fell 45%, according to Kpler data, noted Na. 

In March, the shift to a 2.8% year-on-year decline from 12.6% growth in January–February reflected the material impact of Middle East disruptions on supply chains. By contrast, earlier growth in January and February reflected China’s policy of building strategic petroleum reserves and commercial inventories, Na said. 

Based on a roughly 20-day shipping cycle, the impact of Strait disruptions on arrivals began around March 20. Between March 23 and April 10, China’s weekly average crude imports fell 34%, while Middle East arrivals dropped 58%, according to Kpler data.

Although imports from Brazil, Oman, Canada and Sudan increased, volumes remained too small to offset the shortfall from the Middle East, Na added. 

COAL-BASED ALTERNATIVES

China’s potential to use coal-to-liquids and coal-to-gas to offset impacts of the middle-east conflict remains marginal, Na said, noting that China’s total coal-to-liquids capacity remains below that of a single 10-million-tonne refinery, while coal-to-gas accounts for only around 1.7% of total gas consumption. (See MNI INTERVIEW: Less Demand Eases China's Oil)

However, coal chemicals, particularly coal-to-methanol, provide stronger offset capacity due to their larger share in domestic supply and greater operational flexibility, she said, noting that coal-to-methanol accounts for about 77% of national capacity. 

Disruptions in the Middle East may delay methanol imports and push up coastal prices in the short term, but ample production capacity in northwest China can compensate by increasing operating rates, Na said.

After the conflict began, coal-to-methanol operating rates rose to a high level of 104%–106% on a weekly basis, with producers turning from losses to profits, Na noted.