Quarterly exports may struggle to reach 11 mil barrels
Refiners to cap jet fuel production
Robust manufactured goods exports bode well for air cargo
Singapore — South Korean refiners are unlikely to post any meaningful recovery in aviation fuel exports for the rest of 2021, as major Asian transportation fuel suppliers do not expect to see international air travel normalize this year, though strong air cargo demand may offer some respite to jet fuel sales.
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Register NowThe bulk of South Korea's aviation fuel exports rely on demand from Asia and the US, but sales to these markets plunged to one-third of levels seen before the pandemic outbreak, and the outlook remains downbeat for the rest of the year as well, officials at major South Korean refiners, including SK Innovation and S-Oil, told S&P Global Platts.
A speedy rollout of the COVID-19 vaccination program worldwide would be the key to jet fuel demand and sales recovery. The current slow pace of the vaccination process and a resurgence in infections in large population countries like India and Japan, on top of new rounds of movement restrictions across east Asia, paint bleak outlook for the aviation industry and jet fuel trades, the officials added.
South Korea exported 10.9 million barrels of jet fuel in the first quarter, down 11% from 12.2 million barrels exported in fourth-quarter 2020, and sharply lower than the average 28.7 million barrels/quarter in 2019, data from state-run Korea National Oil Corp. showed.
Asia's key transportation fuel supplier may struggle to post international sales of more than 11 million barrels/quarter for the rest of 2021 if global COVID-19 cases remain high and Asian governments continue to impose strict border control measures, according to fuel marketing sources and industry analysts based in Seoul surveyed by Platts.
Rising COVID-19 infection cases in Hong Kong and Singapore especially bode ill for South Korean aviation fuel suppliers and marketers as they regularly sell their cargoes to the top Asian aviation hubs.
According to the latest traffic report released by Hong Kong's Cathay Pacific airlines for March, the Asian carrier flew a total 18,539 passengers in the month, a decrease of 94% from a year earlier.
Meanwhile, Singapore's proposed travel bubble with Hong Kong is likely to be delayed. The plan for quarantine-free travel between the two cities was slated to begin from May 26 but will be pushed back following a tightening of lockdown-like measures by Singapore in response to a recent rise in infections.
"This comes as a blow to the region's beleaguered aviation sector and reinforces our view jet fuel demand in Asia is likely to lag further behind the US and Europe through the remainder of the year," S&P Global Platts Analytics said in a note.
Reflecting the downbeat international sales and regional demand outlook, South Korean refiners plan to continue cutting jet fuel production yield, with at least two major refiners keeping the output of the middle distillate product at under 6% of the overall fuel production slate, according to industry details gathered by Platts.
Air cargo demand
However, South Korean refiners said they remain hopeful that the recent uptrend in air cargo demand could revive domestic jet fuel sales in 2021, making up for the lackluster overseas sales to some extent.
The South Korean economy has registered a stellar recovery to date in 2021, with robust exports of manufactured goods playing a big role, paving the way for a sharp improvement in air and sea freight activities and related transportation fuel demand.
The country's overall exports, including electronics, semiconductors, automobiles, medical devices and equipment, jumped 16.6% year on year to $53.83 billion in March, marking a record high for the month and a fifth consecutive monthly increase, according to the Ministry of Trade, Industry and Energy.
As a result, national flag carrier Korean Air said its cargo sales in Q1 more than doubled from a year earlier to Won 1.353 trillion ($1.19 billion), and the cargo business in the second quarter is expected to be positive due to a recovery of global trade and increased logistics demand.
Korean Air said it maximized cargo operations by fully utilizing its 23 freighters, operating cargo-only passenger flights, and converting passenger jets into freighters.
"Passenger numbers will likely remain very low but the sharp increase in freight could support air traffic and aviation fuel demand this year," said a Seoul-based senior market research analyst at Korea Petroleum Association.
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May 17, 2021 at 01:23PM
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Analysis: S Korean refiners bearish on 2021 jet fuel exports as air traffic remains in doldrums - S&P Global
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