Opinion

Recent Increase in Chinese Floating Storage is Caused by Import Quotas and New Taxes


 
Vessels are waiting to unload on the Chinese coast
China's 10-day floating storage has shown a major build in the past two months (+19.7 MMb from February 9 to April 6), reaching a yearly high of 23.7 MMb on April 6.

China's 30-day floating storage has also shown a recent build in the past two weeks (+2.7 MMb from March 23 to April 6), after staying near zero for four months between 24 November 2017 and 23 March 2018.
 
Shandong Coast: Heat map of idle vessel concentration
February 2018 to March 2018

This build in floating storage is mainly due to the increase in the number of vessels waiting to unload on the Chinese coast. This comes as a consequence of the 55% increase (from 1.84 to 2.85 MMbpd) of independent "teapot" refineries imports quotas during the beginning of 2018, which is perceived as an opportunity by traders.

    • This was compounded with the onset of the maintenance season as well as the new anti-pollution taxes which resulted both in a decrease of crude demand and a reduction of run-rates.

    • To cope with the new taxes and meet the new regulations by 2020, several Chinese "teapots" are getting ready to blend their gasoline with ethanol to produce E10 fuel.

    • The independent refineries have been consolidating into one conglomerate to increase efficiency as they have historically shown low run rates (below 50% until the end of 2016) and have been struggling with bottlenecks at import ports.

    • Kayrros estimates the share of Chinese crude demand processed by Chinese
      "teapots" at 27% in early 2018.
  • Kayrros will continue to monitor the situation over the coming weeks.



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