CHINA DATA: New crude quotas to aid independent refiners' feedstock appetite in Q4

Feedstock imports by China's independent refiners are set to rebound in Q4 following Beijing's move to hand out 2023 crude import quotas much in advance, bucking the negative trend seen in September when imports dropped close to 6% from a month earlier amid ongoing tax investigations.

Data collected by S&P Global Commodity Insights showed that inflows in September was 5.9% lower from August at 14.16 million mt. On a barrels-per-day basis, imports declined 2.7% from August and was up 7.6% year on year to 3.46 million b/d. Feedstock imports included crude oil, bitumen blend and fuel oil.

Out of the various components, crude oil imports stood at 11.88 million mt, or 2.9 million b/d, in September, dropping sharply by 12.6% from a 7-month high of 13.6 million mt in August.

Shandong-based refiners largely contributed to the slowdown in crude imports by the independent sector, as they slashed inflows by about 26.6% month on month, to a three-month low of 6.35 million mt in September.

These refineries reduced their throughput in August amid the tax investigations, lowering the appetite for the feedstock for September delivery.

Kpler data showed that slower imports amid the relatively stable throughput in September have pulled down crude inventories in the province to 203.4 million barrels in the month, the lowest level since October 2020.

In addition, three independent refineries have shut down since mid-September, which also pulled down the overall feedstock demand.

Three Shandong-based independent refineries, with a combined capacity of 148,000 b/d, shut their crude distillation units from mid-September, to mothball and transfer their crude import quotas to the upcoming Yulong Petrochemical in the same province.

This will affect overall imports in the coming months, sources added.

In contrast, the private refining and petrochemical complexes in Zhejiang and Liaoning provinces -- Zhejiang Petroleum & Chemical and Hengli Petrochemical (Dalian) Refinery -- have raised feedstock imports to match the increased run rates in September.

Combined crude imports by the two refiners rose 6.9% from August to an 8-month high of 4.8 million mt in September, offsetting the drop in inflows by Shandong independent refineries.

New crude quotas to lift imports

Refining sources said that feedstock imports by independent refiners are set to to increase from October onwards as the government had already handed out the first batch of import quotas for 2023 to encourage importers to ship in as many cargoes as possible by the end of 2022.

Beijing recently issued 19.93 million mt of 2023 crude import quotas in advance to 21 qualified refineries, which accounted for 24% of their annual quota limits.

"Some refineries will use the quotas to lift crude import when prices are attractive. But it is difficult to use up all the advance quotas by the end of the year since only two months are left for 2022," said one analyst.

In October, around 8.6 million mt of crude oil are expected to arrive into Qingdao, Yantai and Rizhao ports in Shandong, largely stable from the previous month, according to port sources.

But both ZPC and Hengli are likely to boost crude imports since both have raised crude throughput from September levels.

In addition, Shenghong Petrochemical also plans to start commercial operations from late October, which might also lend some support to feedstock imports, sources said. Shenghong has already increased imports in September, with 260,000 mt arriving in September, compared with 130,000 mt in August.

Bitumen blend imports at 16-month high

In contrast to lower imports of crude oil by Shandong independent refineries, imports of bitumen blend increased by 64.8% from 1.34 million mt in August, to 2.21 million mt in September, a 16-month high.

It was the highest level since the imposition of the consumption tax on the fuel on June 12, 2021.

Demand of bitumen blend, used for producing asphalt for paving roads, has remained strong. This has narrowed discounts for bitumen blend further to around $27-$28/b against the ICE Brent futures on a DES Shandong basis, from a discount of around $30-$31/b about a month earlier, sources said.

"But with the temperature getting lower in winter, demand for asphalt for paving roads will gradually wind down," said a source.

Importers normally turn to bitumen blend to cut down feedstock costs.

FEEDSTOCK IMPORTS FOR INDEPENDENT REFINERS ('000 MT)

Source: S&P Global Commodity Insights