CHINA DATA: Shandong independent refiners may lower crude runs end-Aug: sources

Singapore — China's Shandong independent refineries are likely to slash crude runs in August to about 70%, as their refining margins narrowed sharply from June/July, refinery sources and analysts told S&P Global Platts Aug. 11.

At least six independent refineries -- with a combined refining capacity of around 16.9 million mt/year -- plan to shut their crude distillation units for maintenance in August, the refiners said in the week of Aug. 2.

"The sector's average run rate would decline to below 70% because of those maintenances," an analyst with local information provider JLC said.

This would be a second consecutive monthly fall in the independent refineries' run rate in August, after falling to 72.7% in July from a fresh high of 79% in June.

The theoretical refining margins for cracking imported crudes in July fell by Yuan 259 ($37)/mt from June to Yuan 26/mt, according to JLC's calculations.

"The margin is getting narrower in August, which discourages refining interest," a Shandong-based refiner said.

Consumption of Urals jump

Due to the run cut in July, the combined crude consumption at the surveyed 45 Shandong independent refineries totaled 10.8 million mt, or 2.65 million b/d, down 2.9% from June, JLC's data showed.

Among all the top 5 refined crude grades, consumption of Russian Urals saw the biggest monthly jump of 41.5% to 750,000 mt in July, making it a top third favorite crude after ESPO and Brazilian Lula.

Following Urals, the consumption of Johan Sverdrup crude from the North Sea dropped 15% on the month to 650,000 mt, compared with nil a year earlier.

Western African grades were losing favor among the Shandong independent refineries, which cannot be found in the top 10 crudes.

In contrast, grades from the Middle East -- such as Murban, Oman, Basrah and Upper Zakum -- replaced the West African grade to emerge into the top 10 grades in July. Only Oman and Murban were in the top 10 list in June, JLC data showed.

Bitumen blend consumption firm

In July, a total of 420,000 mt of bitumen blend was cracked by five independent refineries, 281.8% higher from June.

It reflected the increasing demand of asphalt for paving roads in summer, thus more bitumen blend is cracked to produce asphalt.

Meanwhile, tight availability of crude import quota also boosted demand for the bitumen blend, which is allowed to import without any restriction.

Bitumen blend used to be a mixture of heavy crudes, like Venezuela's Merey grade, blended with various heavy materials off Sungai Linggi in Malaysia.

Around 1.02 million mt of bitumen blend has been discharged into Shandong ports in July, with another six cargoes totaling 636,000 mt waiting to be discharged.

With the crude quotas getting short towards the end of the year, more bitumen blend cargoes are likely to arrive in the coming months, sources said.

Crude feedstock of Shandong independent refineries ('000 mt)

Top 10 imported crudes cracked by Shandong independent refineries ('000 mt)

Shandong independent refineries' oil product output, sales ('000 mt)

Source: JLC