【SCI View】Refineries to Gain High LSFO Profits with Tax Rebates

SCI99

2020-01-21

China Refineries to Gain High LSFO Profits with Tax Rebates

The price spread between LSFO and gasoline & diesel is an important indicator reflecting the profitability of LSFO production for China’s refineries. In the production of LSFO from low sulfur crude oil, blending components mainly include vacuum residuum, coking gasoil, FCC slurry and FCC gasoil. Most of low sulfur crude grades have the sulfur content below 0.5%, but the viscosity and pour point are generally high. Therefore, refineries often use vacuum residuum, coking gasoil, FCC slurry and FCC gasoil to blend compliant LSFO. Currently, LSFO prices are around RMB 5,000/mt. Refineries’ profits from LSFO production will increase by RMB 385/mt from the production of gasoline and diesel, if tax rebates are given. More and more refineries are preparing for the LSFO production and planning the LSFO blending business at Zhoushan Port. Therefore, China’s LSFO supply will increase rapidly. If Sinopec and PetroChina finish their production targets, China’s LSFO output will meet around 80% of the domestic consumption in the bonded bunkering field. This will certainly lead to lower LSFO import volume in the future.

SCI predicts that China’s LSFO supply will reach around 20 million mt in 2023, and China’s LSFO barrels will find markets in the countries covered in the Belt and Road Initiatives. China’s domestically produced LSFO will not only meet the domestic bonded bunkering demand but will be exported to other countries in Asia Pacific.