Chinese refineries seem to aim expanding their petroleum products export to make up for domestic slow demand. In March, the country's petroleum product export exceeded import for the first time since January 2010, according to the General Administration of Customs.
Chinese oil giant PetroChina recently announced that its refining sector earned 1.96 billion yuan of profit in the first quarter of this year compared to 1.56 billion yuan of losses a year ago. The company's sales profit in the period increased by 56.6% on year despite turnover fell 2.1% from a year ago.
The main cause of the improved profits could be new official petroleum price system that was introduced in late March 2013. Chinese domestic petroleum product prices are set by the government. Previously, these prices were reviewed based on international market prices in the past 22 business days. But the government shortened the review period to 10 business days last year. Therefore, risks of price gap between international crude oil and domestic petroleum products have been reduced.
On the other hand, I have sometimes reported that China is increasing crude oil procurement and refining capacity based on the rapid economic growth during 2000s but these supply abilities are exceeding the growth of local demand recently.
Especially, crude oil supply seems to be too much against the regional stockpile capacity, so Chinese refineries could be difficult to cut throughput rate.
Chinese refineries are likely to need maintaining relatively high crude oil processing rate because of such improved profitability and the physical constraint. The average throughput rate in the current month by major state-owned companies rose 4 percent points on year to 82% , according to Platts survey.
However, domestic demand does not show any sign of strong recovery. Although China has typically absorbed petroleum products from the international market, the nation could become a net supplier in the near future.