Impacts on China Alkylated Oil Market from Tax Reform

After the Document No. 1 was executed in March 2018, China’s alkylated oil market was fairish, which was better than the market expectation.

Influenced by the Document N0. 1, the overall downstream demand for alkylated oil was relatively sluggish in H1 March. Later, the average operating rate of alkylation units declined by 10% or so. In H2 March, the downstream demand for alkylated oil started to recover, and the operating rates of alkylation units obviously improved. Up to April 19, the average operating rate of alkylation unit rose to about 60%. Meanwhile, the average profit of alkylation units in Shandong reached RMB 82/mt.

The profits of alkylation units obviously increased from mid-March. First, the operating rates of alkylation units dropped, and the C4R2 prices were relatively low. Second, the alkylated oil prices remained firm due to the tight supply. Third, the downstream demand for alkylated oil was better than the market expectation, lifting the profits of alkylation units.

As for the alkylated oil prices, those largely decreased at first. In March, the average alkylated oil price was RMB 5,693/mt, down RMB 299/mt or 4.99% M-O-M. In Shandong, as the demand for alkylated oil from the independent refineries remained firm, the alkylated oil prices in Shandong were obviously higher than those in East China. And the alkylated oil prices in South China were largely higher than those in Shandong and East China. However, as the demand for alkylated oil in East China and South China was largely from blenders, the trading atmosphere in the above two regions was more sluggish than that in Shandong.

On the whole, the profits of alkylation units increased after March, and the operating rates of alkylation units recovered to the normal level gradually. Given the rigid demand for alkylated oil, SCI reckons that the bearish impacts on China’s alkylated oil market from the tax reform will be gradually consumed by the market.