S Korea VLSFO production in Q3 set to rise as refiners seek outlets for LCO
31st May 2021 07:25 GMT

South Korean refiners have confirmed plans to blend some of the surplus light cycle oil into their very low sulfur fuel oil pool -- increasing their VLSFO supply by about 100,000 mt from the end of June -- as Chinese imports of Korean LCO are expected to dwindle ahead of the implementation of a consumption tax on LCO imports from June 12.

Imported LCO in China is typically a blend material for gasoil.

"China was a huge market for us, but now we're going to have to accommodate the extra LCO we will no longer be able to export," said a source at Hyundai Oilbank, which runs a 650,000 b/d refinery at Daesan.

South Korea accounted for more than 60% of China's record-high April LCO imports of 2.08 million mt before news of the introduction of a consumption tax, with Korean volumes totaling 1.28 million mt, showed latest data released May 20 by China's General Administration of Customs.

"Most of our LCO will probably be blended to either 10 ppm or 500 ppm gasoil, a small quantity will be exported elsewhere, and a little bit will be blended into the VLSFO pool, thereby raising our [VLSFO] production by about 20,000 mt," the Hyundai Oilbank source added.

Similarly, SK Energy and S-Oil have also stated their intention to blend small quantities of LCO into the VLSFO pool, raising their VLSFO production capabilities by up to 50,000 mt and 30,000 mt, respectively.

"Blending LCO into VLSFO is limited by the flash point and viscosity of the final blend, so in my estimation, not more than 10% [of LCO] can go in; still with the South Korean bunker market not doing very well, even this small extra production will add pressure," said the SK Energy source.

SK Energy is expected to produce about 300,000 mt of VLSFO in June, with July production onward expected to touch 350,000 mt, the source added.

S-Oil's extra production would add on to its existing VLSFO production of about 140,000-150,000 mt/month.

 

 

Korean bunker demand

 

 

The additional supply comes in a market where downstream demand has come under pressure in the second quarter, bunker traders there said, with more ships calling at China where 0.5%S bunker prices were lower.

The average May spread of the delivered Zhoushan 0.5%S bunker price against the delivered South Korean price was minus $55.36/mt, S&P Global Platts data showed, plummeting from the average April spread of minus $18.42/mt.

Also, when the ships' route included both Japan and South Korea, the preference has been for bunker fuel from Japan due to lower prices, they said.

Still, refiners are hopeful of the market stabilizing from the third quarter.

"The second quarter traditionally sees less bunker demand in South Korea anyway, but hopefully from the third quarter onward, there'll be more of a pickup once the initial [supply] length has been priced in," said the source at S-Oil.


Bunkerworld .,
31st May 2021 07:25 GMT