OREANDA-NEWS. May 30, 2013. China's state traders are expected to export significantly less gasoil in May compared with the previous months' average, as they have reached the limit of their state-mandated export quotas, sources said.

"We have reduced our exports by a lot for May," one Chinese trader said. "We will probably be able to export more in June."

The source added that the company was waiting on news from its headquarters about renewal of export quotas, which are awarded quarterly by the government.

China has seen unusually high gasoil exports since the second half of last year on the back of refinery capacity expansion and muted domestic demand growth for the product.

China exported a total of 1.05 million mt of gasoil in the first quarter of this year, up from 230,000 mt during Q1 of last year, data from China's General Administration of Customs showed.

Gasoil exports in May last year were 180,000 mt, similar to May 2011 volumes.

Last month, Unipec, trading arm of state-owned Sinopec Corp. or China Petroleum and Chemical Corp., sold 4.2 million barrels, or 560,000 mt, of 500 ppm sulfur gasoil for loading from Singapore over the Platts Market on Close assessment process for the product. Rival PetroChina sold 900,000 barrels, or 120,000 mt, of the same grade as well as 150,000 barrels of 10 ppm sulfur gasoil.

Detailed customs data for April will be released next week. Analysts had previously said exports could likely continue in the next few months as domestic demand for gasoil remains muted amid sluggish economic growth.

"Over the past few months, the weaker-than-expected domestic market has forced state refiners to push surplus diesel to the export market, which could be sustained for a while," said Lu Huaibin, president of Beijing-based energy consultancy 3E, in an email.

Lu said export quota volumes are decided by the Ministry of Commerce and National Development and Reform Commission based on oil demand and supply and import and export trends.

"If [they have] used up [the] quotas, oil companies have to apply for additional ones so it is possible that exports might pause...while waiting for extra quotas," he said.

"The government looks at domestic demand first," a China-based trader said. "But if they do a good presentation, quoting figures to say inventory is too high and they keep running the refineries, then they have a case [to increase the volumes in the quotas]."