SINGAPORE (ICIS) – China’s jet fuel exports will not return to pre-pandemic levels this year as global air traffic is expected to remain low as border restrictions remain in most countries.

China’s average annual jet fuel export was around 16 million in 2018 and 2019, before falling to less than 10 million tons in the pandemic last year.

According to the International Air Transport Association (IATA), global international air traffic in March 2021 was 87.8% below the 2019 level.

In particular, the international air travel market in Asia performed worst due to its strict border control measures (see Figure 1).

In the first quarter of this year, international travel demand in Asia in terms of passenger kilometers (RPK) was only around 5% of its 2019 level over the same period, according to IATA.

Source: Oxford COVID-19 Government Response Tracker, Blavatnik School of Government; ICIS analysis

Coding: 0 – No action; 1 – screening; 2 – quarantine arrivals from high risk regions; 3 – Prohibition of high risk regions; 4 – Total border closure

Asia accounts for more than 70% of China’s aviation fuel exports, and demand for aviation fuel in Asia excluding China has continued to lag.

In the first quarter of this year, demand in several key markets in Asia declined by 35 to 77% compared to the same period last year.

During the same period, China’s exports of aviation fuel fell by 64% compared to 2019, according to the Chinese customs authorities.

The recovery in aviation fuel demand in Asia is likely to remain slow for the remainder of the year, as recent new and more transmissible variants of COVID-19 suggest that a recovery could quickly be rolled back to normal.

While vaccination has raised hopes that demand for air travel will improve as the borders reopen, the uneven adoption across countries means demand is only slowly recovering.

By mid-May, 4.9 per 100 people had been vaccinated in Asia, and 32.7 per 100 in North America, according to Our World in Data.

At this vaccination rate, Asia could take 4 to 5 years to cover 75% of its population. Therefore, it is unlikely that demand for air travel in Asia excluding China will return to pre-pandemic levels before 2024.

ICIS predicts that the demand for aviation fuel in Asia excluding China will recover to 42.9 mln t in 2021, or almost 60% of the 2019 level of 36.7 mln t in 2020.

With the restoration of domestic aviation, refineries are being operated to increase production
There is some relief for Chinese refiners, however, as domestic air traffic in China is declining sharply and margins on jet fuel production recover.

According to the Chinese Civil Aviation Authority (CAAC), domestic air traffic in terms of passenger kilometers (RPK) increased 1.6% year-over-year in March after restraining measures were subdued for two consecutive months due to renewed demand.

According to the National Development and Reform Commission of China (NDRC), the apparent demand for jet fuel increased 24.6% year over year in the first quarter of 2021, but was 33% below 2019 levels.

ICIS expects China’s aviation fuel needs to recover to 36.9 million in 2021, close to 2019 levels, aided by strong domestic demand for air travel.

As a result, the average fuel economy in China rebounded from 4.5% in April 2020 to 6% in the first quarter of this year, although it was still below the 8.1% average in 2019.

CHINAS REFINERY JET FUEL EXPORT VS LARGE PRESSURE
China’s refining sector will face higher supply pressures in the second half of the year as the domestic refinery maintenance season ends in June.

With demand for jet fuel in Asia recovering over the long term, China’s refineries will face increasing supply pressures and margins will be squeezed over the next two years as new and expanded refineries come on stream (see Figure 3).

Insight from Anita Yang | and
Man Yiu Tse