Robust industrial activity boosts oil demand in South Korea, but consumer confidence is fragile

South Korea’s robust manufacturing and industrial activity should continue to support the country’s consumption of petroleum products, but demand for consumer transportation fuel is likely to remain fragile at least into early 2022 due to higher oil prices. oil and concerns over another wave of COVID-19 cases.

Demand for the country’s petroleum products in December hit a record high, according to the latest data from the Korea National Oil Corp.

The world’s ninth-largest economy consumed 88.51 million barrels, or an average of 2.86 million bpd, of petroleum products last month, up from 75.82 million barrels a year earlier, marking the seventh consecutive month year-over-year increase, the KNOC data showed.

For the whole of 2021, South Korea’s fuel demand increased by 6.8% compared to 2020.

South Korea’s economy grew by 4% in 2021, marking the highest growth rate in 11 years, as consumer spending, exports of goods and services, as well as construction activity rebounded strongly, according to the Bank of Korea. It’s a sharp turnaround from 2020, when the economy contracted 0.9%, the worst performance since 1998, the central bank added.

Reflecting last year’s blistering economic growth with major conglomerates recording strong exports of semiconductors, automobiles, electronics, petroleum products and steel, diesel consumption and naphtha demand have risen sharply. increased in tandem, according to fuel marketers from major South Korean refiners and analysts from the Korea Petroleum Association.

Industrial demand

Diesel consumption soared towards the end of the year amid robust industrial and manufacturing activity, while demand for fuels surged with a higher number of trucks transporting items from manufacturing complexes to major ports during the month, said middle distillate marketers at S-Oil Corp.

South Korea’s exports of goods and services in December hit a monthly record high of $61 billion, according to the latest data from the Ministry of Commerce, Industry and Energy. The country’s exports in 2021 jumped 26% to $645 billion, marking the fastest growth rate since 2010, with semiconductor shipments up 29% and petrochemical exports up 55% over the year.

Gas oil/diesel demand rose 12.3% year-on-year to 16.25 million barrels in December, marking the largest monthly middle distillate consumption since 16.47 million barrels in August 2019, according to KNOC data. For the whole of 2021, diesel consumption increased by 1.4% year-on-year to reach 166.1 million barrels.

Meanwhile, naphtha consumption also jumped 23.3% year-on-year to 41.450 million barrels in December and demand for base feedstocks for high-end chemicals and plastics in 2021 increased by 11.3% to 450.87 million barrels, according to KNOC data.

Demand for plastics commodity chemicals both at home and abroad is likely to keep South Korea’s naphtha demand strong, especially with local petrochemical manufacturers maintaining high production rates to increase production. production of polypropylene and polyethylene which are essential for the manufacture of disposable plastic syringes and hypodermic needles. than other medical equipment and devices, according to operations managers of Hyosung Chemical and Hanwha Total.

Fragile consumer sentiment

Although South Korea’s business sector is expected to continue to support the country’s overall demand for petroleum products, fuel consumption for consumer transportation is likely to remain fragile at least into early 2022 due to soaring oil prices and the potential reintroduction of strict social distancing measures. and mobility restrictions, industry sources and analysts in Seoul said.

The country’s daily COVID-19 cases hit a new all-time high of 8,571 on January 24, prompting massive populations in major cities to limit unnecessary travel or social activities, as the government begins to consider imposing again strict restrictions.

In addition, despite recent government tax cuts on motor fuels, soaring international oil prices have once again driven up retail gasoline and diesel prices, placing a heavy burden on consumers.

The government cut taxes on motor fuels by 20% for six months, from November 12 to April 30, to help control rising prices at the pump.

However, with international benchmark oil prices surging gains early in the new year to 7-year highs, retail fuel prices are unlikely to drop significantly, despite tax cuts, which is keeping consumer sentiment and demand weak overall, a senior market research analyst at KPA said.

Meanwhile, jet fuel demand is unlikely to recover above the 2 million barrels/month seen before the pandemic anytime soon, as local airlines continue to suspend most flights on international routes. , with many countries still enforcing entry restrictions, according to middle distillate traders.

Jet fuel demand fell 2.2% year on year to 1.79 million barrels in December and 2021 consumption fell 4% to 20.86 million barrels, according to KNOC data.
Source: Platts

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Felix J. Dixon