China's second batch of LSFO export quotas for 2022 rises 8% on year: sources

Beijing has allocated 3.25 million mt of oil product export quota in the second round for bonded bunkering in 2022, up 8.3% from the same round for 2021, sources with knowledge of the matter said May 6.

The new allocation brings the total fuel oil export quotas amount to 9.75 million mt as of May for this year, up 21.9% on the year. China had allocated 6.5 million mt in the first batch.

The quotas help supply tax-free domestically-produced LSFO for bonded bunkering at Chinese ports. But the quotas are not allowed to apply to fuel oil cargo exports, which attract taxes.

With the second round of allocation, Sinopec gains 1.81 million mt of new quotas to become the top quota holder with 5.65 million mt of allowance as far this year, up 27% from the same period in 2021.

However, the quotas held by Sinochem and Zhejiang Petroleum & Chemical slumped 87.5% and 69.2% on the year, respectively, according to the sources.

"It may because the two companies have more proportion of quotas available from the first round allocation," a Beijing-based source said.

Sinochem has not used the 30,000 mt quota it won in the first round, despite market sources expecting the company to export some barrels from its Quanzhou Petrochemical in May.

The latest allocation of bonded fuel oil quota is expected to last through two to three months, according to market participants polled by S&P Global Commodity Insights.

"The 3.25 million mt quota may possibly last till July or August. While the latest allocation may soft delivered LSFO prices, but effects are very likely limited," a Zhoushan-based bunker supplier said May 6.

Beijing encourages bonded LSFO bunkering as it supplies cleaner fuel. Market sources expect the total annual quotas for 2022 would be higher than 12 million mt allocated last year.

China's 2nd batch of LSFO export quota for 2022 ('000 mt)

Source: Market sources