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China's Shandong independent refiners cut run rates to 4-year low of 40% in Feb

Highlights

12 refineries shut in February

January run rate already at 5-month low

Product stocks hit record high in January

Singapore — China's independent refineries in eastern Shandong province have cut February run rates to a four-year-low of around 40% in February, down from 63.5% in January, as product sales slump due to the coronavirus outbreak, refinery sources and analysts told S&P Global Platts Thursday.

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Twelve refineries with a combined capacity of 39.6 million mt/year have shut since late January, resulting in the average run rate in the province falling to 40.9% in February, according to local energy information provider JLC.

These include ChemChina's 5 million mt/year Zhenghe Petrochemical refinery, which was taken offline earlier this week. The company's Changyi Petrochemical and Huaxing Petrochemical operations, with a combined capacity of 15 million mt/year, are also slated to close soon, a JLC analyst said.

The 12 shutdowns over late January-early February take the total number of refineries currently idled in JLC's monthly survey of 44 refineries to 20.

The 44 refineries have a total capacity of 172.4 million mt/year (3.4 million b/d) and account for 50%-60% of China's total independent refining capacity.

A number of refineries have also shut down secondary units in addition to lowering crude throughput, market sources said.

"The Shandong provincial government has restricted road transportation to limit the coronavirus spread, making it difficult to send out oil products and resulting to super high inventories," a refinery source in Shandong said.

"We all have to cut throughput, some even shut down, due to high product inventories amid bad logistics," a Weifang-based independent refinery source said.

In addition, demand for oil products that had been falling since late December was dampened further by the coronavirus outbreak in January as residents in several regions were placed under home isolation, reducing driving activity and halting major construction projects.

Oil product stocks surged 191.1% month on month to a record high 2.8 million mt in January from a 6-month high of 966,000 mt in December, JLC data showed.

Gasoline stocks comprised 1.06 million mt of the total and gasoil 1.75 million mt.

JANUARY RUN RATE SLIDES

The average run rate at the 44 refineries had already hit a five-month low of 63.5% in January, sliding from 72.2% in December and a record high 73.9% in November, Platts' calculations based on JLC data showed. Feedstock consumption in January fell 12.1% on month to 9.1 million mt, or 2.16 million b/d, Platts calculations showed.

Of the refineries surveyed in January, 24 of the 36 operational refineries cut run rates and of the rest, a third raised run rates. The top five refineries cracked a combined 2.6 million mt of crude, comprising about 28.5% of the total crude consumption by the surveyed refineries.

Lula surpassed ESPO to top the crude list in January, with 1.42 million mt cracked. Oman crude rose to third place despite its consumption falling 11.8% from December.

A total 34 grades of imported crude were cracked by the surveyed refineries in January, compared with 37 in December.

Of the 10 most consumed grades in the month, Urals posted the biggest month-on-month spike of 27.3% to 420,000 mt. ChemChina's three refineries cracked the grade, along with Luqing Petrochemical and Wonfull Petrochemical. Urals typically competes with Oman when independent refineries choose feedstocks.

Crude feedstock of Shandong independent refineries

(Unit: '000 mt)

Jan-20
Jan-19
Change
Dec-19
Change
Merey
90
160
-43.8%
60
50.0%
Other imported crudes
7,890
7,730
2.1%
8,885
-11.2%
Shengli
76
90
-15.6%
81
-6.2%
Offshore China
1,030
1,330
-22.6%
1,315
-21.7%
Total
9,086
9,310
-2.4%
10,341
-12.1%
Total ( b/d)
2,148
2,201
-2.4%
2,527
-15.0%

Top 10 imported crudes cracked by Shandong independent refineries

(Unit: '000 mt)

Jan-20
Jan-19
% Change
Dec-19
% Change
Lula
1,420
710
100.0%
1,360
4.4%
ESPO
1,280
1,700
-24.7%
1,635
-21.7%
Oman
750
240
212.5%
850
-11.8%
Urals
420
230
82.6%
330
27.3%
Basrah
400
610
-34.4%
540
-25.9%
Djeno
300
100
200.0%
430
-30.2%
Nemina
300
680
-55.9%
290
3.4%
Mostarda
250
0
N/A
250
0.0%
Murban
200
70
185.7%
200
0.0%
Kuwait
190
70
171.4%
150
26.7%

Shandong independent refineries' oil product output, sales

(Unit: '000 mt)

Jan-20
Jan-19
Change
Dec-19
Change
Output
7,393
6,827
8.3%
8,008
-7.7%
Sales
5,548
6,387
-13.1%
7,876
-29.6%
Stocks
2,811
1,689
66.5%
966
191.1%