China independent refiners' Russian crude imports set to fall further from Feb lows

The appetite for Russian crude among China's independent refiners fell to a nine-month low in February due to lower runs amid festive holidays and the Winter Olympics, while shipping risks and price volatility arising from Russia's invasion of Ukraine may drive down inflows further in March.

Russian crude imports by the independent refiners fell 43% month on month to a nine-month low of 1.58 million mt in February from a six-month high of 2.77 million mt in January, latest data by S&P Global Commodity Insights' showed March 10, pulling down Russia to fourth position among top suppliers of crude to that sector.

Adding to the woes were current crude oil prices above $100/b reducing the interest of the Shandong-based refiners in picking up cargoes of even non-Russian origins.

"Offers and bids for Russian crudes, as well as other crudes, have been practically suspended in the past few days amid soaring crude prices," a refinery source said.

Even before Russia's invasion of Ukraine was launched on Feb. 24, overall feedstock imports by the independent sector were down 19.6% month on month to 13.17 million mt in February,

Russian ESPO arrivals into Shandong -- home to the country's small-sized independent refineries -- fell 39.2% to a nine-month low of 1.55 million mt in February from a record high of 2.55 million mt in January.

The major buyers of ESPO -- ChemChina, Lijin Petrochemical and Kenli Petrochemical -- received 1.05 million mt in February, down 25% from January.

ChemChina's ESPO demand will also likely be affected due to the upcoming maintenance at its refineries. Its Huaxing Petrochemical and Changyi Petrochemical refineries will shut from March 15 and in April, respectively, for maintenance.

Cumulative imports of ESPO at 4.1 million mt over January-February was down a marginal 1% from the same period a year earlier. This fall was much lower compared with an overall drop of 10.9% in inflows from all sources to 29.55 million mt for China's independent refineries.

Shipping, payment concerns

While the biggest hurdles in buying Russian crude were mainly related to payment and opening letters of credit, the sector's interest in other crudes has also slowed to a trickle due to skyrocketing global crude oil prices that have sharply eroded margins, sources said.

"Refiners are now actually at a loss as they still have stocks of low cost [crudes] to run, but this will not last forever," one source said.

More and more independent refineries have started to cut crude throughput amid worsening margins. The 3 million mt/year Chengda New Energy shut its crude distillation unit March 9.

The average run rate at 40 Shandong independent refineries had continued to fall to around 57% as of March 9 from around 60% a week earlier, according to local energy information provider JLC. This compared with around 70% in previous months.

Throughput at the private refining complex Zhejiang Petroleum & Chemical will also likely to head south as refining margins worsen, according to sources.

Malaysian blend imports surge

Bucking the overall trend, imports from Malaysia rose 34.9% month on month to 2.56 million in February, overtaking Russia, Saudi Arabia and the UAE to be the top supplier. Most of this incremental volume came as bitumen blend at 1.79 million mt, up 72% month on month.

Iranian cargoes continued to arrive at Shandong ports in February, with around 1.84 million mt delivered marked as crudes from other origins. This was about 19% lower than imports of 2.275 million mt in January, S&P Global data showed.

China independent refiners are expecting sanctions on Iranian crudes will be lifted soon, as Iranian National Oil Company has been offering fewer Iranian cargoes to trading companies while it holds back cargoes to sell once the sanctions are lifted, according to sources.

S&P Global collects information covering feedstocks imported by independent refineries in Shandong province, Tianjin, Zhoushan and Dalian, Lianyungang, including 32 crude import quota holders, and other non-quota holders.

These 32 refiners have been awarded a combined 99.7 million mt of crude quotas in the first batch of 2022, accounting for 93% of the total allocations to the independent refining sector in 2022.

Top feedstock suppliers for China's independent refiners

(Unit: ,000 mt)

Top feedstock imports for China's independent refiners (000 MT)

Source: S&P Global Commodity Insights