OREANDA-NEWS. Changes to gasoil sulphur specifications will help define trading patterns in Asia-Pacific for the next few years, as governments lead the switch to lower-sulphur fuels and phase out supplies of the dirtier 500ppm grade.

China, the biggest consumer of middle distillates in Asia Pacific, is tightening its vehicle tailpipe emissions standards in line with Beijing's increasing focus on air quality. Sulphur emissions will be capped at 10ppm from 1 January, down from 50ppm previously. Chinese state-run oil companies have been racing to complete refinery upgrades to meet the so-called China 5 specifications, with the prospect of an even tougher national standard being introduced in 2019.

The change may absorb some of the country's 10ppm exports, which have spiked this year. The rise in exports has added to regional supply and weighed on fob Korea premiums for 10ppm sulphur gasoil.

The tighter sulphur limits will only be applied to road diesel, and so will not have a major impact on Chinese gasoil consumption patterns given the industrial and agricultural sectors are significant users of the fuel. But the change will help Chinese refiners prepare for an eventual total switch to a 10ppm sulphur standard for all gasoil use.

Separate regulatory changes in China are also boosting consumption of the fuel. Beijing in September started a clampdown on trucks that are overloaded or have been illegally modified, significantly raising transportation costs. The rules, which are due to stay in place for around 10 months and expire at the end of July 2017, have forced trucks to carry smaller loads and make more journeys.

Some companies initially shied away from using trucks because of the higher costs, but the rules are likely to boost the use of diesel in the long term, an analyst at Chinese state-controlled trading firm Unipec says.

And China will also enforce tougher sulphur limits for bunker fuels at 11 key ports, starting 1 January. The ports, including in the major city of Shanghai, will cap sulphur at 0.5pc, down from around 1.5-3.5pc now. Some ports such as Shenzhen in south China have already enforced tighter limits ahead of the official switch in January.

The new rules mean ships may be unable to burn fuel oil, the cheapest and most commonly used type of bunker fuel, which typically contains up to 3.5pc sulphur. Gasoil blends with sulphur content of less than 1pc will be used as an alternative.

The consequent rise in gasoil demand from China's marine fuels sector, along with a recovery in the country's industrial activity, has helped support cargoes from nearby Taiwan at a premium to South Korean cargoes at times this year. Prices would otherwise be closer to parity.