A sharp cut in import tariffs by Vietnam has come as a blessing for South Korea, which is increasingly boosting its oil product exports, mainly gasoline, to the Southeast Asian nation, thereby reducing its over-dependence on China and Singapore as homes for its surplus output.
Since Vietnam halved import taxes on South Korean gasoline to 10% from 20% last December under the Free Trade Agreement, South Korean oil products exports have been climbing steadily, with May exports rising 10-fold, while cumulative exports in the January-May period showed an eight-fold jump.
Market sources expect Vietnam's interest in South Korean oil products to climb even further.
"South Korean gasoline exports to Vietnam are expected to keep rising, driven by the lowered tariffs," said an official at the Korea Petroleum Association.
"South Korean refiners are also seeking to increase exports to Vietnam as part of their efforts to diversify oil export destinations, heavily focused on China and Singapore."
South Korea exported 2.51 million barrels of oil products to Vietnam in May, soaring more than 10 times from 211,000 barrels a year earlier, according to data released last week by the Korea National Oil Corp.
And for the first five months of the year, South Korea's overall oil product exports to Vietnam surged nearly eight times to 6.96 million barrels, compared with 884,000 barrels in the year-ago period.
Gasoline accounted for the bulk of the exports to Vietnam at 1.81 million barrels in May, or 72.1% of South Korea's total oil product shipments to Vietnam.
South Korea did not export any gasoline to Vietnam in May last year.
Over the January-May period, South Korea exported 6.03 million barrels of gasoline, compared with nil in the same period last year.
South Korea also exported 648,000 barrels of gasoil in May, which marked the first shipment of the driving fuel since February last year when it shipped out 294,000 barrels.
The country has been exporting relatively smaller volumes of LPG, asphalt and lubricants to Vietnam.
"Korea used to export a lot of gasoil and motor gasoline to Vietnam but nowadays, there is no longer [much] gasoil [exports] as it cannot compete with ASEAN barrels," a state-owned gasoline importer said, referring to an increase in shipments to Vietnam from the group of Southeast Asian countries. In May, the largest supplier of oil products to Vietnam was Malaysia, with 473,875 mt, rising more than seven times from the same month last year.
The second biggest seller in the month was another ASEAN nation, Singapore, with 356,993 mt, up 8.4% year on year.
Vietnam's Ministry of Finance has proposed to Prime Minister Nguyen Xuan Phuc to let it cut the import duty imposed on domestic gasoline to 10%, from the current 20%, to help the 130,000 b/d Dung Quat refinery compete with low-priced imports from South Korea and other countries which Vietnam has free trade agreements with. UPWARD TREND
South Korea's oil product shipments to Vietnam have accelerated since March when it exported 1.21 million barrels, compared with merely 46,000 barrels a year earlier, driven by strong gasoline shipments.
South Korea's gasoline exports to Vietnam, which has been less than an average of 250,000 barrels a month last year, jumped to 1.11 million barrels in March and to 1.89 million barrels in April.
The country exported a total of 2.97 million barrels of gasoline to Vietnam in 2015.
"The sharp rise in gasoline exports to Vietnam was attributable to the reduction in import tariffs by Vietnam under the Free Trade Agreement," the KPA official said.
Under the FTA, the new import tax rate of 10% for South Korean gasoline is expected to remain in place until 2018. The import tax on fuel oil has been abolished.
Import taxes on gasoil, kerosene and jet fuel are to be kept at 5% over 2015-2017, and will be ultimately abolished from 2018.
Buoyed by strong shipments to Vietnam, South Korea's overall oil product exports in May jumped 16.7% year on year to 42.87 million barrels, or 1.38 million b/d, compared with 36.74 million barrels a year earlier.
The export volume was the biggest since September 2012 when it shipped out 44.93 million barrels.
South Korea's exports of gasoline jumped 36.4% year on year to 6.29 million barrels in May, and jet fuel shipments rose 30.5% year on year to 10.63 million barrels in May.
For the first five months of this year, South Korean exports of refined products increased 8.5% year on year to 201.68 million barrels, compared with 185.84 million barrels in the same period of last year.
Vietnam imported 1.28 million mt of gasoline in the first five months, up 4.9% year on year, according to customs data.
The country's Dung Quat refinery is estimated to produce 3.41 million mt of products in the first six months, almost the same as H1 last year, the company said in a statement earlier this month.
The refinery is estimated to have operated at about 103%-105% of its designed capacity in H1.
