CHINA DATA: Lure of lofty margins lifts China crude runs to record highs in June

China's crude throughput surged to record highs in June, as refiners took advantage of plentiful inventories of relatively cheaper crude at home and earned lofty refining margins at a time when international crude prices have bounced back to pre-pandemic levels.

Analysts said crude runs in second-half 2021 would remain high as new capacity is expected to come online. In addition, state-run refiners would keep their throughput elevated to meet domestic demand growth.

China processed 14.86 million b/d of crude in June, rising 3.9% from the previous record high of 14.31 million b/d in May. It was up 5% year on year, showed data released July 15 by the National Bureau of Statistics.

The country had built hefty crude inventories, rising to a historical high of 937.71 million barrels in September 2020, according to commodities data provider firm Kpler.

With destocking activity continuing from February, inventories fell to 14-month lows of 879.46 million barrels in June, when imports fell to a six-month low amid rising crude prices.

China's ceiling retail prices for gasoline and gasoil are set to move in line with international crude prices to generate good refining margins.

ICE Brent crossed $70/b on June 1 and has been hovering over that mark. S&P Global Platts Analytics expects Dated Brent prices to average around $77/b in July before easing toward $66/b by the end of the year.

The refining margin for cracking imported crudes by Shandong independent refineries was around Yuan 615/mt ($87.80/mt) at the beginning of June, falling to about Yuan 378/mt ($54/mt) as of end-June, JLC data showed.

Less outage

In addition, about 38 million mt/year of refining capacity returned to operation between end-May and June across five refineries under Sinopec and PetroChina. These boosted the average utilization rate of China's four state-owned refineries to a four-month high of 82.4% in June.

A few independent refineries also decided to postpone scheduled maintenance works to July from June due to good refining margins, helping private refiners in Shandong province to lift crude throughput by 8.2% from May levels, S&P Global Platts previously reported.

The strong growth in June brought the country's crude processing volume in the first half of 2021 to 14.31 million b/d, jumping 11.3% year on year, as the country's gross domestic product expanded 12.7% over the same period.

GAC releases data in metric tons, and Platts converts it to barrels using a 7.33 conversion factor. On a metric ton basis, throughput in January-June rose 10.7% year on year to 353.35 million mt.

H2 outlook

Looking forward to H2, China's throughput is expected to maintain the upward momentum as the country would aim to meet incremental demand from the anticipated commissioning of new refining capacity, although the rate would be slower because of a higher base rate of growth in the same period last year.

Platts Analytics expects throughput in July-December to rise about 1% year on year. For the whole of 2021, it expects a 5%, or 746,000 b/d, growth year on year.

Throughput growth will also find support from robust domestic demand, which is expected to grow quarter on quarter by 300,000 b/d in the third quarter and about 700,000 b/d in the fourth quarter, according to Platts Analytics.

Higher throughput is required to make up the gasoline, gasoil supplies reduction as new consumption taxes have blocked inflows of blended stocks -- mixed aromatics and light cycle oil -- analysts said.

Up to 840,000 b/d of new capacities with state-run Sinopec and private Zhejiang Petrochemical, and possibly even Shenghong Petrochemical, could start trial runs later this year, which will boost crude runs, according to Platts Analytics.

In the upstream sector, domestic crude production in June also reached a five-year high of 4.07 million b/d, a 2.8% year-on-year increase, as Beijing steps up efforts to secure energy supplies, GAC data showed. The previous high of 4.08 million b/d was in June 2016. In the first six months of 2021, China lifted crude production by 3% to 4.02 million b/d.

China's crude output, throughput (million mt):

Source: National Bureau of Statistics