China's Jet Recovery Still Waiting for Take Off

China’s fragile jet fuel demand recovery is a cautionary tale for the rest of the world as refiners and airlines start thinking about the post-pandemic rebound in air travel. The first country to be hit by Covid-19 and the first to bounce back from it, China has yet to see its jet fuel demand fully recover even a year after most lockdown restrictions were lifted. International flights are still mainly grounded but heavyweight domestic air travel has also been at the mercy of the ongoing threats posed by the coronavirus. A series of local outbreaks in January prompted the authorities to clamp down on travel during the peak Chinese New Year holiday period. That led to far fewer flights than had been expected, resulting in a 9.1% contraction in jet fuel buying in January-February compared to December, according to Energy Intelligence calculations. In contrast, an almost coronavirus-free China in early April saw tourists make the most of Qingming, the tomb sweeping festival. Data from the Civil Aviation Administration of China (CAAC) show passenger trips reaching 4.33 million over that holiday -- a 256.4% increase in numbers from 2020 but still 8.9% below 2019 levels (JFI Apr.16'21). China’s refining and export data illustrate the uncertainties ahead. Apparent jet demand reached 814,000 barrels per day in the first quarter of 2021, according to Energy Intelligence calculations, a 41.5% increase on the first quarter of 2020, and 3.9% higher even than during the first quarter of 2019, before the pandemic struck. But the seemingly strong number is inflated by still-low Chinese jet fuel exports, which were down by more than 60% on both 2020 and 2019 levels at just 140,000 b/d in the first quarter. A good chunk of China's apparent jet demand is likely to be buying for storage. Refiners have been ramping up their jet fuel production but output is still down 14% compared to two years ago. Bullish Forecasts China National Petroleum Corp.'s Economics and Technology Research Institute (ETRI) forecast earlier this month that China’s total products exports would jump by almost 32% to 54.7 million tons this year, as oil demand recovers worldwide. Jet exports are expected to rise the most, by 43% from 2020 levels to 12.7 million tons (274,200 b/d) (JFI Jan.22'21). But even that sharp recovery would still put jet exports 28% below 2019’s record-high of 17.61 million tons (380,200 b/d). A full return to pre-pandemic demand and export levels will only be achieved in 2022 if coronavirus cases can be kept low. ETRI expects passenger turnover in China to return to 85% of its pre-pandemic levels this year. That would lead to a 13% rebound in jet consumption to 37.5 million tons (814,000 b/d) which is still 2.7% below 2019 levels. China, like most countries in the Asia-Pacific region, reacts quickly, and strongly, to local outbreaks. This helps keep the outbreaks localized but can have a rapid, and rather dramatic, impact on demand for transportation fuels, as was seen at the beginning of the year. Aircraft suppliers are certainly hoping that the worst is behind them when it comes to Chinese airlines. Boeing expects intra-China travel to increase by 84% between 2019-29 and by another 64% over the following decade to 2039. The company has lifted its China aircraft demand forecasts to 8,600 new airplanes by 2039, up 6.3% from its previous prediction of 8,090 airplanes last year. In the shorter term, Chinese airlines, whose 2020 final results were hammered by impairments, expect reduced losses for the first quarter. CAAC forecast earlier this month that Chinese airlines would report losses totaling 30.05 billion yuan ($4.06 billion) for the first quarter, a slight improvement on losses of 30.63 billion yuan a year ago. Olympic Dreams Two factors could accelerate China's aviation recovery: a pick up in vaccinations in China and worldwide; and the 2022 Winter Olympics in Beijing. By Apr. 21, China had vaccinated 195 million or 14% of its citizens -- still a far cry from its target to have 40% or 550 million people vaccinated by the end of June. Skepticism over the efficacy of the vaccines has left many in China reluctant to get the jab, especially since the country has been so successful at keeping the virus at bay for most of the last year. The 2022 Winter Olympics in Beijing are also expected to lead to a jet demand surge although the extent will depend on the state of the pandemic and vaccination rates in China and abroad. Japan’s ban on international audiences attending the delayed Summer Olympics in Tokyo this summer, and uncertainty if it will allow domestic attendance, has been a blow to jet demand recovery hopes in Japan. China is optimistic that its 2022 Winter Olympics will take place in a much safer world. But other issues could pop up, such as a potential boycott of the games by some Western countries keen to denounce what they describe as China's human rights violations in the province of Xinjiang. Maryelle Demongeot, Singapore