China Alkylated Oil Price to Inch Up

After the Spring Festival holiday, China’s alkylated oil prices first rebounded and then obviously dropped. In Shandong, the alkylated oil prices declined by RMB 500/mt or 8.16% within a week after the Spring Festival holiday.

After the Spring Festival holiday, as downstream users replenished stocks and the new consumption tax was imposed on refined oil in March, China’s alkylated oil prices first rebounded slightly and then dropped quickly. Given the new consumption tax, most downstream users adopted a wait-and-see attitude to China’s alkylated oil market. Therefore, the demand for alkylated oil weakened rapidly.

As shown in the chart above, China’s alkylated oil market remained tepid in March. With the temperature rising, the demand for gasoline will decline. Traditionally, China’s alkylated oil prices will largely decrease in H1 March and rebound in H2 March. Curbed by the limited downstream demand, the increase in China’s alkylated oil prices will be relatively limited.

In March, the new consumption tax was officially imposed on refined oil, greatly impacting China’s blended oil market. The sales of alkylated oil underperformed, so most alkylated oil producers cut the alkylated oil prices. SCI estimates that China’s alkylated oil prices will continue to decline in H1 March, influenced by the new consumption tax. In H2 March, China’s alkylated oil will rebound to some extent, but the increase will be limited, as the demand for alkylated oil from the gasoline market is relatively sluggish.

At present, the decline in China’s alkylated oil prices mainly results from the new consumption tax, which causes the increase in the cost of alkylated oil. Up to March 1, China’s alkylated oil prices were RMB 623/mt lower than the GB V gasoline prices. The average price of gasoline was RMB 109/mt lower than the alkylated oil price in 2017. Thus, the profits at downstream users were relatively high.

As the demand for gasoline is average and the purchasing prices of gasoline at some refineries are RMB 6,800-6,900/mt, most market participants hold bearish sentiment towards the gasoline market. SCI predicts that China’s alkylated oil prices will decline by RMB 200/mt to RMB 5,500/mt in H1 March. In H2 March, China’s alkylated oil prices will inch up, as the impacts from the new consumption tax weaken gradually.