CHINA DATA: Independent refineries' crude imports rise by 1.8% on month in May

Feedstock imports for China's independent refineries rose by 1.8% month on month to 3.71 million b/d, or 15.7 million mt in May, as the refiners stockpiled bitumen blend ahead of the introduction of a new consumption tax on the fuel, data collected by S&P Global Platts showed on June 4.

Bitumen blend imports jumped 15.2% month on month to hit a record high of 2.64 million mt in May. Around 1.935 million mt, or 73.3% of total bitumen blend imports were discharged in the second half of May. This came after the government on May 14 announced the introduction of the new consumption tax starting from June 12.

The rest of crude imports also gained 432,000 mt from April.

The increased inflow boosted crude inventories at major ports -- Dongjiakou, Qingdao, Rizhao, Yantai, Dongying, Laizhou and Longkou -- to hit a fresh record of 6.49 million mt on June 3 amid slow throughput. The inventories were 5.2% higher than the previous record of 6.17 million mt in end-April, data from local energy information provider JLC showed.

The small-scale independent refineries in Shandong cut their runs to 67% in May from the average 71% in April, JLC data showed.

Around 21.2 million mt/year capacity has been offline since April, with only 6.5 million mt/year of capacity having been restarted from Lijin Petrochemical and Chengda New Energy in late May.

Zhenghe Petrochemical and China Overseas Energy will restart from scheduled maintenance in early June, which will help draw down the port inventories.

Imports to be capped

The combination of high stocks and the introduction of consumption tax on imported bitumen blend is expected to cap crude imports by the private sector in the coming months.

Bitumen blend is typically crude cargoes blended off Malaysian waters with heavy grades, mostly Venezuelan Merey and Iranian crude recently.

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

Bitumen blend imports by the Shandong independent refineries are expected to have reached about 8.86 million mt in January-May to become the second preferred grade during the period, Platts data showed.

Meanwhile, imports of the barrels was at 13.93 million mt in June-December last year, data from the General Administration of Customs showed.

The independent refineries imported 8.86 million mt of bitumen blend in January-May on top of 71.81 million mt of crude in the same period, according to Platts data.

In contrast, 102.68 million mt of crude import quotas were allocated to the respective refineries for 2021, and about 48 million mt quotas were expected to be issued in the second batch of quotas allocation for this year. This suggests that around 80 million mt of quota will be available for the rest of the year when access to bitumen blend imports is effectively blocked.

To make for feedstock shortage due to the new tax and tight crude import quota, independent refineries have emerged in the fuel oil market and taken at least 210,000 mt of straight-run barrels as replacements, Platts reported on June 7.

Jan-May imports rise

The total feedstock of crudes and bitumen blend imported by independent refineries amounted to 80.67 million mt over the first five months of the year, up 16% from 69.53 million mt a year earlier.

This was double the country's import growth of 7.2% over the first four months of the year, according to data from the General Administration of Customs. Independent refineries contribute a third of China's crude imports.

Among these, Hengli Petrochemical (Dalian) Refinery and Zhejiang Petroleum and Chemical, have imported a total of 21.27 million mt of crudes, up 14.7% from a year earlier.

Most of the incremental volume was contributed by ZPC, which posted a growth of 25.7% as the company has imported more feedstock after the startup of its third crude distillation unit in November 2020. The fourth one is scheduled to start up from June onward -- which largely depends on when the second batch of crude quotas will be allocated, according to company sources.

Platts collects information covering crude and bitumen blend imported by independent refineries in Shandong province, Tianjin, Zhoushan and Dalian, including 38 crude import quota holders and non-quota holders.

The barrels include those imported directly by the refiners as well as cargoes bought by trading companies on behalf of the independent refiners that were discharged into tanks.

The 38 refiners have been awarded a combined 104.68 million mt in crude quotas in the first batch, accounting for 88.3% of the county's total allocations for the independent refining sector in 2021.

Independent refineries refer to those in eastern Shandong province, Jiangsu Xinhai Petrochemical and Xinhai Chemical in Hebei province, Fengli Petrochemical in central Henan province, Hengli Petrochemical (Dalian) Refinery in northeastern Liaoning province and Zhejiang Petroleum and Chemical in eastern Zhejiang province. Imports by trading companies were also for the independent refineries in the region.

CRUDE IMPORTS FOR INDEPENDENT REFINERS ('000 mt):

*State-run firms trading for independent refineries

**Including imports for some unspecified recipients

Source: S&P Global Platts data, company sources