Small China refineries to post deepest throughput cuts amid coronavirus outbreak

China's small-scale independent refineries are set to witness their sharpest throughput cut in February as the coronavirus outbreak exacerbates the country's economic slowdown, refining sources and analysts told S&P Global Platts this week.

"Independent refineries, especially those in Shandong, got hit the hardest this time around, with their utilization rates slashed and operations shut down for some," said Kang Wu, head of Platts Analytics Asia.

Initial estimates show Chinese crude runs could be about 1 million-2 million b/d lower for February than originally expected, according to a Platts Analytics report.

One Beijing-based analyst said Independent refineries, except the new mega Hengli Petrochemical (Dalian) and Zhejiang Petroleum & Chemical, are estimated to cut throughput by 700,000 b/d in February, with Sinopec and PetroChina likely to cut about 600,000 b/d and 300,000 b/d, respectively, and the rest to cut 200,000 b/d.

Total China throughput will drop by 1.8 million-2 million b/d amid tepid demand, the analyst added.

Independent refiners in Shandong province have reduced their average run rate by around 17 percentage points from mid-January to 48% this week, and that rate is expected to fall further to around 40%, according to local information provider JLC.

The sector, taking about 25% of China's total refining capacity, will borne the heaviest brunt versus independent peers like Hengli and ZPC due to logistic bottlenecks, including land-locked transportation and limited storage tanks.

In Shandong, home of the small-scale independent refineries, the government has banned trucks registered in other provinces to ship out products, local refiners said.

But both the newly built Hengli and ZPC are located on the coast, where competitive water-tariffs and sufficient storage have helped to maintain runs after their startup last year. The 400,000 b/d Hengli has kept its run rate at 108%, a company source said this week, adding it will adjust throughput, if necessary.

Petrochina

Compared to small-scale independent peers, state-owned refiners generally have less throughput cut as they have oil product export quotas to find outlets in overseas. Moreover, the state-owned PetroChina will shut its 240,000 b/d Guangxi Petrochemical in southern China February 9 for a 50-day overall maintenance.

The country's only scheduled turnaround in China in February helped PetroChina offset its stock pressure. As a result, most of PetroChina's refineries only cut their throughput by 2,500 b/d-7,600 b/d.

"Our inventory levels are not too high currently, and PetroChina has spare tankers elsewhere," a refining source at PetroChina's Daqing Refining said.

Sinopec

Sinopec, the world's biggest refiner, plans to cut 10% throughput of its total 5.89 million b/d capacity in February, sources said. Reductions vary at different Sinopec refineries, from about 20,000-50,000 b/d, with the bottom line of 60-70% operation rate.

Its 420,000 b/d Jinling Petrochemical did not only plan to cut throughput, but shut its FCC and gasoline hydrotreater this week for three months as gasoline sales dropped about 70% from normal levels, a source with the refinery said.

The company cut throughput by 21%, or 30,330 b/d, to 113,700 b/d from its original plan in the 160,000 b/d Luoyang Petrochemical in Henan Province, a company source said. Henan is the neighboring province to Hubei, where Wuhan is located.

Sinopec's JV 280,000 b/d Fujian Refining and Petrochemical has cut it run rate to 60% from around 70% in January, which is the lowest run it can bear, a refinery source said.