Seoul - On top of stricter emission controls and a move toward
electric vehicles, Asia’s diesel traders now have to worry about sea cucumbers
off China’s
coast.
A Chinese move to protect endangered marine creatures with a
fishing ban contributed to a drop in the so-called crack spread in Asia for diesel, a measure of returns from producing the
fuel, to a 9-month low.
That’s because thousands of the country’s fishing trawlers
idled between May and September won’t require the fuel at a time when supplies
are usually ample as refineries return from maintenance work.
This isn’t the first time the traders have been rattled by
policy changes in China,
the world’s biggest energy consumer. The country raised its fuel standards for
vehicles in January, leading its refiners to boost premium diesel production,
in turn reducing the price spread between cleaner and dirtier grades in Asia.
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The fishing ban, slower economic growth, and a move away
from heavy industries in the nation could cloud the outlook for the fuel
further, according to Fitch Group’s BMI Research.
“A nationwide fishing ban imposed in May will further hit
diesel consumption by China’s
sizable boat fleet,” BMI said in a May 25 report. “With the Chinese
economy set to slow down further in the second half of 2017, demand for refined
fuels could see added pressure in the coming months.”
Needing Protection
Overfishing coupled with rising demand for seafood have
exhausted fish resources in China’s major rivers and seas, said Liu Xiaoqiang,
an official at the Ministry of Agriculture’s fishery department. Among
those in need of protection is the sea cucumber, hairtail and yellow croaker.
Sea cucumbers, a revered luxury food item on the plates of wealthy Chinese
consumers, have been harvested at an unsustainable rate, according to
WorldFish, a non-profit research organization.
China
introduced the fishing ban on all four of its main seas on May 1, the first
time it has synchronized dates for the moratorium for all offshore fishing. The
ban ends between August and September and is about a month longer than previous
prohibitions, affecting almost 200 000 fishing boats and one million fishermen,
according to the agriculture ministry.
That has weakened the price of diesel, typically the fuel of
choice for fishing boats, according to five traders and an analyst surveyed by
Bloomberg. It also sent the crack spread for diesel in early May to its lowest
level since August 2016. It was near $10 a barrel on Wednesday.
“Fishing activity in China certainly affects domestic
diesel demand,” said WengInn Chin, an oil market analyst with industry
consultant FGE, adding the ban had contributed to some pressure on the crack.
Not Enough
Still, some analysts say that China’s fishing boat demand isn’t
big enough to significantly affect prices of diesel. It only accounts for about
2-3 percent of total consumption of the fuel, according to Jean Zou, an oil
analyst with ICIS-China.
More importantly, refineries are coming back online
following routine maintenance shutdowns, while China’s vehicle fleets are moving
away from gasoil-use to alternative-fuel vehicles and electric cars.
“While the fishing ban might have a short-term impact on
Chinese diesel demand, we see transportation and other industry developments as
being also highly relevant,” said Andrada Irimie, an analyst at JBC Energy
GmbH, a consultant in Vienna.
“However, pressure is likely to stem from the supply side.
As Chinese crude intake is seen rising over the coming months, we expect
Chinese diesel supply to trend higher, resulting in a stronger export
potential.”