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China's first lot of 2019 crude import quotas to refineries drop 27% to 84.06 mil mt

Singapore — China's independent and other state-owned qualified refineries have received their first batch of crude import allocations for 2019 totaling 84.06 million mt, down 26.6% from the first batch last year, sources told S&P Global Platts Wednesday.

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The tight quota allocation was likely due to slow crude import growth in January-October, sources said.

About 44 qualified refiners were allocated quotas. In 2018, 34 qualified refiners were awarded 114.59 million mt of crude import quotas, up 76.6% from the same batch in 2017.

As a result, the first batch of quotas in 2019 accounted for 47.5% of the refiners' annual ceiling quotas, totaling at 177.14 million mt, which were set by the National Development and Reform Commission.

NDRC sets the maximum volume that a qualified refiner can import in a year, while the Ministry of Commerce issues import quotas for the actual volume the refiner can import.

The ministry said in September the quota allocation for the first batch of 2019 would be based on a refiner's total imports over January-October 2018.

The group of refiners imported 81.23 million mt of crude in the first 10 months of 2018, up 3.6% year on year, according to S&P Global Platts data.

REDUCTIONS

The 10 new refineries in the first batch list initially got permission in 2018 from NDRC to crack imported crude oil.

The plants include the greenfield Hengli Petrochemical and Zhejiang Petrochemical and Dragon Aromatics, known as Fuhaichuang Petroleum and Petrochemical.

The 20 million mt/year Hengli Petrochemical and the 20 million mt/year Zhejiang Petrochemical each received 4 million mt of quotas in the first batch, about 20% of their ceiling quota levels.

Fuhaichuang Petroleum and Petrochemical got 600,000 mt of quotas. Market participants said the allocations were relatively low as they were expecting the company to boost condensate purchases after years of suspensions.

Some of the companies are unlikely to see an impact on their operations because they are holding plentiful stocks from 2018.

Hengli and Fuhaichuang started trial runs in December, while Zhejiang was expected to start up mid-2019.

"The quotas are enough for our production in the first half, as we still have 2 million-3 million mt of stocks left from 2018," a source at Hengli Petrochemical said.

Hengli has been running only its 10 million mt/year crude distillation unit, with no timeline for the start of the second unit.

Among existing quota holders, state-run ChemChina saw a 44.5% year-on-year reduction to 9.26 million mt in the first batch. Sources with the company declined to comment on the reduction.

SECOND ROUND QUOTAS

Meanwhile, refiners expected MOFCOM to issue the second round of quotas early in the second half to offset the tightness, earlier than in 2018 when they were allocated in October.

"The refineries with lower allocations in the first round will probably need to slow imports in H1 until the second round allocation," a source with a Rizhao-based refinery said.

Sources said those refineries, which had not fully used up quotas for 2018, were unlikely to receive their entire ceiling volumes given tighter allocations in the first round.

In China, refineries built and operated by state-owned companies -- CNOOC, PetroChina, Sinochem and Sinopec -- do not need quotas to import crude.

However, all other refineries, including independent ones and those owned and operated by state-owned companies, such as ChemChina and Norinco, require quotas to crack imported crude oil.

In addition to the 44 refineries, 14 state-owned and private trading companies have also received a total quota of 5.78 million mt. Crude imported by this route will be mostly sold to CNOOC, PetroChina, Sinochem and Sinopec.

The total quota allocation of 89.84 million mt was down 25.9% year on year.

--Staff, newsdesk@spglobal.com

--Oceana Zhou, oceana.zhou@spglobal.com

--Edited by Dan Lalor, daniel.lalor@spglobal.com