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Chinese oil firm Sinopec eyes South Africa amid domestic glut

Sinopec move to go further a field comes in the wake of increased diesel production in China that exceeds demand

Story Highlights

  • Sinopec said Monday that is shipped its first 30,000 tonnes of diesel from its Shanghai refinery headed for South Africa
  • The company observes that they were using larger vessels to ship the oil in international markets a move aimed at  helping the state-run refiner to save on freight
Chinese oil firm Sinopec said Monday that is shipped its first 30,000 tonnes of diesel from its Shanghai refinery headed for South Africa, a move that could signal increased competition in China where supply exceeds demand.

The company observed that they were using larger vessels to ship the oil in international markets a move aimed at  helping the state-run refiner to “save on freight, compete with supplies from other regions and attract buyers in far-off destinations.”

“Refinery runs were growing fast but domestic consumption did not catch up. With two more new refineries expected to start soon, the glut is only going to get worse,” Liu Mengkai, fuel products analysts with consultancy Sublime China told Reuters.

In such a situation Chinese companies will have to increasingly look at newer destinations beyond Asia, where the scope to grow volumes was limited.

Part of new markets would include Europe. According to cargo-tracking company Kpler and data compiled by Bloomberg, at least three newly-built Very Large Crude Carriers have loaded diesel from Tianjin in China and near Singapore to reach as far as Fos Sur Mer in France around June or July.

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Part of the reason behind the increased Asia-Europe diesel flow is the persistent fuels glut in China,” said Peter Lee, an analyst at BMI Research. The oversupply “has contributed to Asia’s diesel prices under-performing prices in Europe.”

But in targeting South Africa, Sinopec would have to contend with competition from the Middle East, the tradition suppliers of oil products to the country.

“The Middle East-South Africa is a natural arbitrage sort of movement due to proximity,” says Anthony Okun a shipping expert based in East Africa.

But Sinopec could find South Africa a valuable market if it gets cheaper ships for the work, says Mr Okun.

South Africa’s monthly gasoil imports averaged 357,493 mt in H1, data from South African Revenue Service showed. The Middle East and India were the biggest suppliers.

South Africa’s fuel standards are regulated under Clean Fuels 1 implemented in 2006, which sets a maximum sulfur content of 500 ppm in diesel and also introduced 50 ppm sulfur grade. The country’s Engen Petroleum is also a regular buyer of 10 ppm sulfur gasoil.

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