China’s independent refineries likely to cut H2 crude imports by 27%

0
149

Highlights

Probe set to reduce PetroChina Fuel ’s

Five refineries facing to import quota volumes

Consumption tax to slash bitumen blend imports

Article continues below Advertisement...

Crude oil imports by ’s independent refineries are likely to fall by 27% in the second half of 2021, S&P Global Platts estimated June 11, as a probe into illegal trading reduces PetroChina Fuel Oil’s inflow, five plants face having their quota allocations reduced, and a consumption tax slashes bitumen blend imports.

The independent refineries’ imports are likely to fall by 4.4 million mt (1.06 million b/d) to 11.74 million mt/month in H2 from the 16.13 million mt/month averaged over the first five months of 2021, according to Platts estimates.

The private sector has been the engine of China’s crude import growth over the past few years, accounting for about 30% of the country’s 10.71 million b/d crude imports over January-May, plus almost all of the nation’s 7.76 million m of bitumen blend imports over January-April, according to Platts and General Administration of Customs data.

The reduction in imports by close to a third in H2 will force the independent refiners to cut throughput if they are not able to find another way to secure adequate feedstock. The sector’s monthly crude throughput over January-May was about 14.7 million mt/month, Platts data showed.

However, the potential reduction in throughput by the independent refiners is not being met with concern by the , as state-owned refineries are currently not running at full and could increase output to cover some of the shortfall, as well as reduce refined product exports, and new refining capacity is due to come on stream as well, analysts said.

Platts’ estimations are based on the crude imports of 37 import quota holders, which account for about 87% of China’s total quota allocation.

Quota-free supply cut

Independent refiners face three main hurdles in importing crude in H2. Key among these is a reduction in supply from PetroChina Fuel Oil in the wake of an investigation led by China’s top planner the National Development and Reform Commission into illegal trading in imported crude oil.

PetroChina Fuel Oil, a subsidy of state-owned oil giant PetroChina, had initially targeted supplying 16 million mt of quota-free imported crude oil to private refineries in 2021, of which around 6 million mt has already been delivered.

However, the balance 10 million mt is unlikely to be delivered after the NDRC launched a series of investigations in mid-April into the independent refining sector’s capacity and crude oil import quota usage, before expanding its checks to the state-owned sector.

PetroChina Fuel Oil used to sell on quota-free imported crude barrels to independent refineries and get refined products in return, in a form of tolling trade allowed by the government.

However, in recent years it has been selling 15 million-20 million mt/year of imported barrels to private refineries without receiving oil products in return, straining its adherence with government policies.

China requires all refineries to use their own crude import quota allocations to import , with the exception of those built by state-owned oil giants Sinopec, PetroChina, CNOOC and Sinochem.

Quota volumes set to be cut

The NDRC’s investigations found that some independent refineries had traded crude quotas illegally in the secondary market, which was expected to be punished by cuts in quota allocations to the identified refineries in the coming batches for 2021, Shandong-based independent refiners said.

This includes four independent refineries in Shandong province and one qualified state-run plant in Shaanxi province.

Market sources said these refineries are likely to be allocated smaller quotas in the coming batch, resulting in a reduction of around 3.04 million mt to their annual quota ceiling volumes.

Qualified refineries usually receive quotas at their ceiling limit every year, but the government’s strict inspections are expected to change this.

On top of this, the government is also expected to withdraw 1.3 million mt of quota issued to Zhonghai Fine Chemical because the refinery has been dismantled as a part of Shandong province’s refining consolidation plan.

Zhonghai Fine’s quotas are set to transfer to the upcoming 20 million mt/year Yulong Petrochemical refinery, which is still under construction. This will result in only about 45.28 million mt of additional quota being allocated for rest of 2021 for the 37 refineries, if not considering the new capacities planned by Zhejiang & Chemical and Shenghong Petrochemical.

These independent refineries imported 71.81 million mt of crude over January-May, according to Platts data. This compares with 102.68 million mt of crude import quotas allocated to the refineries for 2021 in the first batch, and the 6 million mt supplied by PetroChina Fuel Oil.

The second batch of quotas is expected to be released after the Dragon Boat Festival on June 14.

Bitumen blend imports cut

Last but not least, a consumption tax that kicks in June 12 is set to slash bitumen blend imports.

Bitumen blend is typically heavy crude cargoes blended off Malaysia with heavy grades, mostly Venezuelan Merey and Iranian crudes in 2021.

Independent refineries, especially those in Shandong province, are the major buyers of bitumen blend as the barrels are currently consumption tax free and refiners are not required to use crude import quotas to bring in the cargoes.

Around 8.86 million mt of bitumen blend was imported into Shandong province over January-May, accounting for around 10% of the total feedstock imports by the sector in the period, according to Platts data.

The consumption tax will add Yuan 1,376/mt or $215.20/mt to the cost of bitumen blend imports, after value added tax, from June 12.

“We need to see how low Merey and Iranian crude prices can go,” a Shandong-based refiner said.

Author

Analysts Oceana Zhou
  
Analyst Daisy Xu

Editor

Wendy

Commodity

Oil, 
Petrochemicals

Source: Platts

LEAVE A REPLY

Please enter your comment!
Please enter your name here